Publication of Royal Decree 960/2020, dated 4 November 2020, in the Official State Gazette, regulating the economic regime for renewable energies for electricity production facilities

Written on 5 Nov 2020

In application of the provisions of Article 7 bis of the Electricity Sector Law (introduced by Royal Decree 23/2020, of 23 June, which approves measures in the field of energy and other areas for economic recovery), Royal Decree 960/2020, of 3 November, which regulates the economic regime for renewable energies for electricity production facilities (hereinafter "RD 960/2020"), in addition to the specific remuneration regime, has been published. The approval of this legislation also partially incorporates into Spanish law, Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018, with regard to support schemes for electricity from renewable sources.

The content of this provision is summarised below:

A) Introduction.

The purpose of this rule is to regulate a remuneration framework for the generation of electricity from renewable energy sources called the "economic regime for renewable energy" and based on the long term recognition of a price for energy.

The scope of application of this Royal Decree includes facilities that use a non-fossil renewable energy as their primary energy, which may be made up of more than one technology and have storage systems. However, in order to qualify for this economic regime, the facility must be (i) new in its entirety or (ii) an extension or modification of an existing one (in which case it will be eligible for the scheme for the part corresponding to the new investment).

The economic regime will be granted through an auction procedure in such a way as to ensure that it is granted in an open, transparent, competitive, cost-effective and non-discriminatory manner. The auction mechanism will be regulated by order of the Ministry of Ecological Transition and Demographic Challenge (subject to the agreement of the Government's Delegate Commission for Economic Affairs) and the auctions held under the aforementioned ministerial order will be called by means of a resolution of the State Secretariat for Energy, published in the Official State Gazette.

In the auction procedures to be convened, a distinction may be made between different generation technologies on the basis of their technical characteristics, size, manageability levels, location criteria, technological maturity, those others that guarantee the transition to a decarbonised economy and may also take into account the particularities of renewable energy communities so that they can compete on an equal footing with other participants.

However, in the case of small facilities (with installed capacity of less than 5 MW) and pilot projects, the order regulating the auction mechanism may provide for exemption from the competitive tendering procedure for the granting of the aforementioned remuneration framework.

The provisions of Royal Decree 413/2014 of 6 June, which regulates production activities from renewable energy sources, cogeneration and waste, will be applied to the facilities covered by the economic regime for renewable energies, with the exception of the provisions on the specific remuneration scheme. Furthermore, the order regulating the auction mechanism may define additional technical requirements, such as those relating to system regulation and balancing services, or those aimed at improving network stability and system operation, among others.

In general, the application of this scheme is not compatible with the receipt of the specific remuneration scheme, nor with aid granted for the same purpose and linked to the same investment, although the order governing the auctions may provide for exceptions for certain aid.

B) Auction mechanism.

Under the economic regime for renewable energy the product to be auctioned will be (i) installed capacity; (ii) electrical energy or (iii) a combination of both. This will be set out in the order governing the auction mechanism in question. The resolution calling the auction shall specify the quota of product to be auctioned. The bid variable shall be the price per unit of electrical energy expressed in euros/MWh.

A procedure for awarding contracts by auction, using a payment-according-to-offer mechanism, is established. The provision of financial guarantees is a prerequisite for participation in the auctions. Financial bids must be expressed in euro/MWh. A maximum price (reserve price) will be set and a minimum price may be set (risk price). The selection of bids will be based on: (i) discarding those whose economic value is higher than the reserve price and, if there is a risk price, those with a lower value than the risk price; (ii) they shall be ordered from lowest to highest value of the bid; (iii) starting with the lowest bid, they shall be selected until the quota established in the resolution calling for the auction is reached and (iv) the bids selected shall be considered the successful ones. The volume offered must exceed by at least 20% the volume of product to be auctioned and the volume of product awarded to the same company or business group may not exceed 50% of the total auctioned.

The result of the auction will be the power or energy allocated to each participant and its awarded price, which will correspond to its economic bid.

The body administering the auctions will be the Spanish Electricity Market Operator (OMIE) and the supervisory body will be the National Commission for Markets and Competition (CNMC).

Finally, in order to enhance the predictability of those wishing to participate in the auctions, a mandate is established to adopt by ministerial order a timetable concerning, inter alia, the frequency of the calls, the expected quantity and the technologies envisaged, which will cover a minimum period of five years and be updated at least annually.

C) Economic regime for renewable energies.

The economic regime for renewable energy allows for the collection of revenues through the sale of energy on the market with the particularity that, for a given volume of energy (i.e. "auctioned energy") and within a defined period of time (i.e. the "maximum delivery time"), the sale price of energy will be calculated on the basis of the result of each auction.

Thus, "auctioned energy" is defined as energy generated during the "maximum delivery period" by the facilities covered by the economic regime through their participation in the market which does not exceed the "maximum auction energy". In order to better understand this definition, it is useful to indicate what is meant by maximum delivery time, minimum and maximum auction energy:

  • The "maximum delivery period" is the maximum, non-renewable period for facilities to comply with their obligations to sell the "minimum auction energy", and will be limited to between 10 and 15 years as this period is considered to be sufficient time to transmit the signal of certainty regarding the income of the facilities. Exceptionally, it may be extended to 20 years.
  • The "minimum bidding energy" is the minimum volume of bidding energy that must be reached by each facility under the economic renewable energy regime before the end of the maximum delivery period. A penalty system is thus established to provide an incentive to comply with the minimum auction energy.
  • The "maximum auction energy" is the maximum volume of auction energy that can be covered by the economic regime.

When the facility in question has reached the maximum auction energy or when the date of expiry of the maximum delivery period has been exceeded, the application of the economic regime for renewable energy will end. Thereafter, the facilities concerned will be free to continue to participate in the market. Before that, however, they will also be able to opt out of the scheme, which will entail a financial penalty if the opt-out takes place before the "minimum auction energy" has been exceeded.

The price to be received by the facilities for each unit of auctioned power traded on the daily and intraday market shall be its auction clearing price corrected, where appropriate, on the basis of the symmetrical market participation incentives established by the order governing the auction mechanism. The auction clearing price will not be updated.

D) Inclusion of the mechanism in the market.

Operators of facilities under the scheme will participate in the daily and intraday market. To this end, each facility must be constituted as a bidding unit. Physical bilateral contracts for these facilities are prohibited.

The market operator will be responsible for the settlement of the auctioned energy traded in the daily and intraday markets. It shall settle the differences, which may be negative or positive, between the price on the aforementioned markets and the price to be received by each facility and shall settle the net value of the energy traded in the balancing and adjustment services for each facility.

E) Electronic registration and administrative procedures relating to the economic regime for renewable energy.

The electronic register of the economic regime for renewable energy will be created. As has been the case up to now for auctions, entries in the register will be made in the pre-allocation or operating state. In order for a plant to be registered in the operational state, it must be (i) be fully completed (i.e. it has all the elements, equipment and infrastructure necessary to produce energy and feed it into the electricity system, including, where appropriate, storage systems; it has obtained definitive registration in the administrative register of electricity production facilities held by the competent body and it has begun to sell energy in the market) and (ii) comply with the requirements or conditions relating to its characteristics laid down in the order regulating the auction. When compliance with the requirements set out in RD 960/2020 has not been demonstrated by the deadline for applying for registration in the register in the state of operation, the cancellation procedure shall be initiated for failure to register in the register in the state of pre-allocation for the power which has not been registered in the state of operation. Registration in a state of exploitation may also be cancelled in the cases reflected in the aforementioned regulation. Finally, the possibility of modifying the data of the owners of the registered facilities and the information relating to them is established.

This regulation entered into force on 5 November 2020.