The new economic regime for renewable energy in Spain

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The new economic regime for renewable energy in Spain

On November 3, the Royal Decree on the Economic Regime of Renewable Energies (REER) was approved by the Ministry for the Ecological Transition and the Demographic Challenge. It is intended for new renewable power and will allow the hybridization between technologies and the expansion and modification of existing facilities and will be compatible with storage. According to the estimates presented by the Government, this measure is intended to reach a minimum volume of 19.3 GW of new renewable power.

The new REER is focused on complying with the decarbonisation commitments that Spain has acquired in the Paris Agreement and as a member state of the European Union. These commitments have been planned in the Nacional Integrated Climate Energy Plan (PNIEC) 2021-2030, which provides for the installation of around 60GW renewables in the next decade and which includes, among its measures, the development of this type of auction.

FACILITIES INVOLVED

It concerns electrical energy facilities from renewable energy sources (including those that integrate more than one technology or have storage systems) which did a new investment produced after the holding of the auction that originates the right to receive the REER. These investments include cases in which the investment results in a new installation, and those cases in which it is an extension or modification of an existing installation. In the latter case, the REER may only be received for the part corresponding to the new investment.

It should be noted that in general the application of the REER is not compatible with the perception of the specific remuneration scheme provided for in Royal Decree 413/2014, of June 6, or with aid that is granted for the same purpose and linked to the same investment .

AUCTION CALENDAR

The Royal Decree also establishes the system for calling auctions. By ministerial order, the auction mechanism will be regulated, and may include, among other aspects, the technologies, conditions and guarantees to participate in the auction, the product to be auctioned, as well as the parameters and other elements that make up and specify the Economic Regime of Renewable energy.

On the other hand, and in order to promote the predictability of the auctions, by ministerial order, a forecast of the auction calendar will be collected, which will include a minimum period of five years and will include indicative terms, the frequency of the auctions, the expected capacity and planned technologies, if applicable. Said calendar will be updated at least annually and will be aimed at achieving the renewable production objectives established in the National Integrated Energy and Climate Plan (PNIEC) 2021-2030.

The auctions carried out under each ministerial order will be called by means of a Resolution of the Secretary of State for Energy, which will be published in the Official State Gazette (BOE).

OPERATION OF THE AUCTIONS

The auction manager will be OMIE and the National Markets and Competition Commission will be the auction supervisor.

Each auction will have defined a product to be auctioned either in terms of installed power, electrical energy or a combination of both and a quota. The product to be auctioned will be defined by the ministerial order that calls said auction.

Participants will bid by offering the price they are willing to charge for the energy generated by the installation, expressed in euros / MWh to two decimal places.

The auction mechanism will be as follows:

  • The resolution by which the auction is called must determine the quota of product to be auctioned.
  • The presentation of new guarantees by the agents interested in participating in the auction is foreseen to guarantee that they finish the plant before the end of the maximum period.
  • In the resolution calling the auction, a maximum price (reserve price) will be set, and a minimum price (risk price) may be set. Both may be confidential and will be expressed in euros / MWh to two decimal places, as a fixed value or by a calculation formula.
  • Offers whose economic offer value exceeds the reserve price will be discarded and, if a risk price has been determined, offers with a value lower than the risk price will be discarded.
  • Auctions will follow the sealed envelope method.
  • Offers will be ordered from lowest to highest value of the economic offer.
  • Bids will be selected starting with the lowest economic value offer until reaching the auctioned product quota established in the resolution of the auction call, without selecting any offer whose inclusion entails exceeding the product quota. The bids thus selected will be considered successful bidders, based on the award price of each facility.

The auction will result in the power or energy awarded to each participant, according to the auctioned product, as well as its award price, which will correspond to its economic offer and which cannot be updated.

The volume of the product awarded to the same company or business group may not exceed 50% of the total volume of the auctioned product or the lower percentage set by the regulatory order of the auction mechanism.

The Royal Decree provides that the auctions convened distinguish between different generation technologies based on their characteristics. In addition, it provides the option that the order regulating the auction process exempts demonstration projects or small-scale installations (with installed power below 5 MW) from the auction procedure. In these cases, the result of said procedures may be used as a remuneration reference.

REGISTRY

The norm also regulates the procedure for the registration of the winning facilities in the Electronic Registry of the Economic Regime of Renewable Energies, as well as the financial guarantee that they must present, the specific amount of which will be specified in the order that regulates the auction procedure. Initially, the successful bidders will be registered “in a pre-assigned state” and, once they have started to sell energy in the market, they will appear “in a state of exploitation”.

The power registered in the registry in the operating state will correspond to the current power installed and may be higher than the power registered in the pre-assigned state.

In the auction regulations, mechanisms may be established by which to prove the maturity of the facilities prior to their registration in the electronic registry in either of the two states.

The withdrawal in the construction of the installation or the non-fulfilment of the requirements established in the auction will suppose the execution of the guarantee and the loss of the right to the remuneration scheme.

ASPECTS TO TAKE INTO ACCOUNT

Each facility in the REER will be constituted as an offer unit, the aggregate offers not being valid. Furthermore, the owners of the facilities under the REER may not declare physical bilateral contracts with said facilities. However, the participation of the facilities in the adjustment and balance systems will be allowed.

The auction energy is the energy negotiated during the Maximum delivery period by the facilities under the REER, through their participation in the market, without exceeding the Maximum auction energy.

The Maximum delivery period is the maximum time period within which the facilities included in the REER have to comply with the obligation to sell the Minimum auction energy and will be between 10 and 15 years, considering its possible extension to 20 years.

The starting date of the Maximum delivery period will be established in the resolution calling for the auction. Mechanisms may be established to guarantee projects, as well as to guarantee their viability. For example, milestones prior to the completion of construction may be considered.

The Minimum auction energy is:

a) When the product to be auctioned is electrical energy, the Minimum Auction Energy will coincide with the Maximum Auction Energy.

b) When the product to be auctioned is installed power, the Minimum Auction Energy will be calculated using the following formula:

Failure to comply with the Minimum Auction Energy value may result in the imposition of penalties.

On the other hand, the Maximum energy will be calculated by the following formula:

Once the Maximum Auction Energy is reached, the facilities will receive the remuneration derived from their free participation in the electricity production market.

The liquidation mechanism will be managed by the market operator. This will settle the difference (positive or negative) between the market prices (daily and intraday) and the price to be received by each facility hosted by the REER.

The economic surplus, in the event that the price of a supply unit is higher than the price to be received, will translate into an income for the market that will be distributed by the market operator among the national purchasing units.

REER OPERATION

The regulation establishes a new renewable auction system based on a price for production, not for the investment made, as it is currently. The price that is received in each trading period, for each unit of Auction Energy traded on the daily and intraday market, will be the award price resulting from the auction that will coincide with the economic offer presented.

However, the order regulating the auction mechanism may determine that said price be corrected based on the market adjustment percentage.

In accordance with the above, the price will be calculated using the following formula:

The market adjustment percentage will be set by the regulatory order of the auction mechanism, it will be expressed as per one and will be between 0 and 0.5. If the order is not established, this percentage will be understood to be 0.

In this way, the successful tenderer may partially assume the risk of the fluctuation of the market price, in favour and against. With this, it can be encouraged, for example, to offer its energy in the most expensive hours of the market, which allows it to displace other forms of generation with higher prices. With this measure, it is also possible to favour the installation of plants capable of shifting their production at certain times, such as those that have storage.

If the daily and intraday market price were 0 euros / MWh, the price to be received for the facilities under the REER will be equal to the market price. This energy will not be counted as Auction Energy. These moments are called the collection exception period, although it is also foreseen that the regulatory order of the auction mechanism may set a Collection Exemption Price higher than 0 euros / MWh.

CONCLUSION

From the sector, the new remuneration framework is seen with good eyes. On the one hand, the calendar gives visibility and predictability. In fact, the government plans to call in December one of the first auctions for the allocation of the economic regime of renewable energies for a minimum of 3,100 megawatts (MW).

On the other hand, this remuneration mechanism based on a price per production allows certainty to investors in renewables and the industrial sector. In this sense, the director of UNEF Donoso positively valued the norm and pointed out that “It is going in the right direction to give certainty […]. The auctions will allow Spain, while making progress in achieving climate objectives, to have competitive energy and generate economic growth and employment”. In addition, according to the settlement mechanism, everything seems to indicate that this price will be passed on to consumers energy bill, thus allowing them to see their energy cost reduced.

Marta Merodio | Energy Consultant

By | 2020-11-18T12:33:51+00:00 November 18th, 2020|Categories: Energy Markets, Featured, M·Blog, Spain|Tags: , , |0 Comments

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