Renewable energy law and regulation in Spain

1. Brief overview of the renewables sector

The production of electricity from renewable sources represents 49.3% of Spain's power generation capacity, with over 108,000MW installed. Of the 261,020GWh of electricity produced in Spain in 2019, 36.8% came from renewable technologies, which led to the commissioning of almost 5,000 new megawatts of capacity during the year.

The development of renewable energies has coincided with the regulation of these technologies and the approval of various remuneration schemes. Following the Electricity Sector Act 54/1997 of 27 November, economic arrangements 1 Royal Decree 2818/1998 of 23 December on the production of electricity at facilities supplied with renewable energy sources or resources, waste and cogeneration and Royal Decree 436/2004 of 12 March outlining the methodology for the review and systematic approach towards the legal and economic arrangement of electricity production under a special scheme. were created which triggered a sharp increase in renewable energies, especially wind-based facilities (with a current installed capacity of 25,000MW) and contributed towards achieving the 2000-2010 Plan for the Promotion of Renewable Energies.

The subsequent enactment of Royal Decree 661/2007 of 25 May, regulating electricity production under a special scheme, enabled the construction of small-scale photovoltaic facilities totalling 4,000MW in capacity. Investors were guaranteed a reasonable rate of return on their investments based on remuneration for the energy produced at a fixed price (feed-in tariff). The costs attributable to the grid were passed on to consumers, also at a reasonable rate. 

However, an increase in all grid-related costs, including payments to transmission and distribution networks and capacity-based payments, meant that consumer bills failed to include the entirety of these costs and led to the accumulation of an annual deficit in the grid. This forced a review of all remuneration types in a bid to halt the build-up of debt within the system.

A remuneration scheme was created based on recovering investments and obtaining a rate of return which would ensure reasonable profitability for renewable energy producers within a sustainable grid framework. This reform was developed by way of Royal Decree-law 9/2013 of 12 July, adopting urgent measures to guarantee the financial stability of the electricity system, and the Electricity Sector Act 24/2013 of 26 December.  

Under this reform, all facilities became regulated by the same laws and earned income from participation in the market, receiving – where applicable – two kinds of supplementary remuneration. First, a price per unit of installed capacity (€/MW), covering the costs of investment for ordinary facilities which cannot be recouped through the sale of energy (return on investment). Second, an operations-based price (€/MWh) covering the difference between operating costs and income from ordinary facilities’ participation in the market (operations-based remuneration). The return on investment mechanism also includes a remuneration rate which could reach a reasonable rate of return, abolishing the feed-in tariff arrangement. 
The annual cost of remuneration through this specific scheme for the grid exceeds EUR 7bn, with the electricity system boasting financial stability and even a surplus since 2015.

Later, in 2016 and 2017, auctions were called in Spain which awarded 9,300MW of renewable capacity, mainly from wind and photovoltaic sources. The facilities which won the auctions had to be commissioned before 1 January 2020 in order to continue to benefit from the specific remuneration scheme. Under that scheme, these facilities would only receive income from the grid when the price obtained from the sale of electricity in the market was lower than the floor offered at auction (the return on investment offered was zero).

Both 2018 and 2019 have witnessed an increased number of wind farms and photovoltaic plants which are not included under the specific remuneration scheme. These facilities receive the market price directly or enter into long-term agreements with customers who purchase their energy and take on the risk of price fluctuation to recover their investment.

2. Recent developments in the renewables sector

Facilities entitled to remuneration under the 2019 scheme

The specific remuneration scheme, Royal Decree-law 17/2019 of 22 November introduces  urgent measures for the essential adjustment of electricity grid remuneration parameters and addresses the process of decommissioning thermal power stations. 

For facilities eligible under the scheme (renewables, cogeneration and waste), this regulation sets out the reasonable rate of return applicable to the remaining regulatory lifespan of ordinary facilities. This figure will be used to review and update the remunerative parameters to be applied during the second regulatory period (2020 to 2025).

Accordingly, all facilities receiving specific remuneration – following the former Royal Decree 661/2007 and subject to Royal Decree 413/2014 – will be able to receive it (2016 and 2017 auctions). Future facilities, possibly following new auctions, which are entitled to receive a return on their investment when the rate for the following regulatory period is set, will receive a rate of return of 7.09% or 7.398%.

Facilities commissioned before 2013 will receive 7.398% from 2020 to 2031 where they have not filed or agree to waive legal action or arbitration proceedings against the Kingdom of Spain due to the 2013 regulatory amendments.

Private consumption

Royal Decree 244/2019 of 5 April regulates the administrative, technical and economic conditions for the private consumption of electricity (RD 244/2019). It incorporates a section of the content of Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources into the Spanish legal system. 

The Electricity Sector Act 24/2013 of 26 December was the first law to create a legal framework for private consumption, which is considered to be a source of power generation aside from the grid. It is defined as consumption by one or several consumers of electricity from facilities close to or linked to where consumption takes place. This act sets out the different forms of private consumption: individual or collective; and with or without excess generation. Energy consumed privately which comes from renewable sources, cogeneration or waste is exempt from all types of charges and tariffs.

Royal Decree-law 15/2018 of 5 October, on urgent measures for the energy transition and protection of consumers, highlights private consumption as an essential element to ensure that consumers are able to obtain cheaper and cleaner energy. It also stipulates the exemption of charges and tariffs in a bid to promote private consumption with distributed renewable generation. 

These regulations have triggered the development of private consumption facilities at homes and in industry, representing a key increase alongside photovoltaic plants.

Regulatory developments

Royal Decree-law 1/2019 of 11 January covers urgent measures to adapt the remit of the Spanish Competition Authority to EU law requirements in relation to Directives 2009/72/EC and 2009/73/EC of the Parliament and of the Council of 13 July 2009 on common rules for the internal market for electricity and natural gas. It sets out new responsibilities for the regulator and will enable greater independence when it comes to regulatory decision-making, specifically the approval of regulations which affect the technical management of the grid and remuneration-related aspects.

New regulation to drive the energy transition

Royal Decree-law 23/2020 of 20 June approving energy-related and other measures for economic recovery regulates a series of key components for the development of the electricity system:

  • Access and connection, as well as a new auction-based mechanism designed to provide energy produced from renewable sources with a stable and defined framework.
  • New business models as part of the energy policy and, in particular, the aggregation of demand, storage and hybridisation.
  • Energy efficiency, enabling greater flexibility of the National Energy Efficiency Fund.

Regulations on the development of new auctions and access/connection permits are currently being debated and set to be passed by the end of 2020.

3. Forthcoming developments / opportunities in the renewables sector

The plans to develop renewable energies in Spain are covered by two main regulations which are both linked to the European-wide goal of reducing greenhouse gas emissions and fulfilling the commitments assumed under the Paris Agreement. The key regulatory texts are as follows:

  • The EU Winter Package – "Clean energy for all Europeans" –  is the Europe-wide mechanism for driving the transition towards clean energy. It sets out the EU's goals for 2030 in relation to the reduction of greenhouse gas emissions, as well as energy efficiency and renewable energy incorporation objectives. The binding goals set for the European Union as a whole are:
    • To cut greenhouse gas emissions by 40% in relation to 1990 levels.
    • 32% of final energy consumption to come from renewable sources.
    • An increase in energy efficiency of 32.5%.  
    • To ensure total electricity interconnection with neighbouring states of at least 15%.
  • The Integrated National Energy and Climate Change Plan (the PNIEC). Following the guidelines set out under the Governance Regulation, the Spanish government has included specific goals for Spain in this document, some of which appear significantly more ambitious than those set by the EU. The goals include:
    • A 21% reduction in greenhouse gas emissions in relation to 1990 levels.
    • 42% of final energy consumption to come from renewable sources.
    • An increase in energy efficiency of 39.6%.
    • 74% of electricity to come from renewable sources

The PNIEC forecasts total installed capacity in the electricity sector of 157GW by 2030, 50GW of which will be wind energy, 37GW solar energy and 7GW thermoelectric.

Total investment is expected to come in at around EUR 236bn, with 80% private sector investment against 20% public sector investment. This investment will be made through:

  • Development of transmission and distribution networks. To achieve the PNIEC goals, the electricity system requires significant investment to integrate new renewable capacity. Spain has begun to pass through a new 2021-2026 plan for transmission networks aimed at facilitating an increase in installed and supply capacity for new renewable energy facilities.
  • New auctions for innovative renewable energy facilities, technologies under development and those which contribute to the management of the grid may be called.

In addition to these two main regulatory texts, other notable developments include:

  • Spain is working on an energy storage regulation which will enable greater viability in terms of supply and the management of electricity produced at renewable energy facilities. New projects are expected to be presented in 2020.
  • Projects which enable hydrogen to be obtained from solar panels are currently being investigated, and further advances are predicted which will pave the way for new technology in the energy sector.
  • Energy transition has led oil and gas companies to develop green gas and renewable gas projects in a bid to comply with CO2 emission regulations.
  • Significant regulatory changes are expected in relation to network access and connection permits, which could restrict the acquisition of these rights for projects that are not effectively developed.
  • New auctions for renewable facilities scheduled over the coming years.
Portrait of Ignacio Grangel
Ignacio Grangel