I INTRODUCTION

The political turmoil resulting from the unexpected, and successful, motion of censure (vote of no confidence) on 1 June 2018 – with the ruling conservative Popular Party being replaced by the Socialist Party – is certain to have an impact on a number of legislative measures under discussion affecting the development of renewable energy projects in Spain.

In addition to specific measures relating to the promotion of self-consumption already proposed by the new ruling party (namely the Draft Law on Measures To Enhance Self-Consumption of Electricity) it is expected that the new government will speed up the drafting and approval of the proposed Law on Climate Change and Energy Transition, which is very likely to result in an incentive for renewable energies, to decarbonise energy production to comply with the Paris Agreement and EU targets. The new energy policy is expected to result in the closing of existing carbon power plants.

It is also expected that the new Law on Climate Change and Energy Transition will take into consideration some of the conclusions of the report prepared by the Committee of Experts on Energy Transition appointed by the former Ministry of Energy. Among other relevant measures, the report of the Committee of Experts proposes modifying the current financing of renewable energy projects, by means of a surcharge to be imposed on all sources of energy.

II THE YEAR IN REVIEW

The surprise change of government in Spain has had an immediate impact on the renewables sector.

While the former ruling party had introduced a draft law2 in the Spanish parliament to prevent the closure of carbon and nuclear power plants with the aim of controlling electricity prices, the new ruling party, together with other political groups, has introduced a draft law to enhance self-consumption of electricity.

These two law proposals are a clear example of the discrepancies between the Popular Party and the Socialist Party in terms of enhancement of renewable energy. As the draft law introduced by the Socialist Party recognises, inter alia, 'this slow development [of electric energy self-consumption] is due principally to the lack of a stable regulatory framework and to the existence of a clearly discouraging legal framework, especially the approval of Article 9 of Law 24/2013 on the Electricity Sector and Royal Decree 900/2015, which regulates the administrative, technical and economic conditions of the modalities of supply of electric energy with self-consumption and of production with self-consumption, and which imposes a number of technical, administrative and economic barriers to electric energy self-consumption'. One of the main new measures that the draft law will introduce is the option for various consumers to share self-consumption facilities.

As stated above, it seems likely that the new government will speed up the drafting and approval of the Law on Climate Change and Energy Transition and, following the report by the Committee of Experts on Energy Transition, will seek to reform the financing of renewable energy projects by imposing a surcharge on all sources of energy, comprising the following elements:

  1. a first component that will reflect the overrun of the most efficient renewable energy facilities. However, taking into account that the results of the latest auctions indicate that overrun for renewable energy facilities is nil at current market prices, the first component of the surcharge shall be also nil; and
  2. a second component, complementing the first, that will reflect the overrun of renewable facilities installed in the past with a higher cost than the actual costs. This component should be financed by the state budget, although if this is not possible, the surcharge may be imposed on all sources of final energy (and thus ultimately paid for by end consumers).

The following points are expected to be the main pillars of the new government's new energy policy:

  1. the closing of carbon power plants;
  2. the non-extension of the useful life of nuclear power plants beyond 40 years;
  3. the fostering of renewable energy projects. In this context, the revision of the Specific Remuneration incentive for renewable energy plants is expected to be maintained at levels of 'reasonable return' similar to those applicable to date, in contrast to the attempt by the Popular Party government to reduce the remuneration for renewable energy plants by about 30 per cent. (See Section III.i for details of the Specific Remuneration incentive scheme.)

Apart from these recently announced developments, the main highlights of the past year in the Spanish renewables sector may be summarised as follows:

  1. an increase in the use of the 'project bond' mechanism (including green project finance bonds) to finance new renewable energy projects and to refinance existing renewable energy projects;
  2. an increase in the number of projects to be financed on a 'merchant' basis (rather than on the basis of a feed-in tariff or premium);
  3. an increase in the appetite for corporate power purchase agreements (PPAs) to provide certainty regarding monetary flows and to mitigate regulatory uncertainty;
  4. an increase in the interest of infrastructure funds in acquiring renewable energy companies or assets in Spain. In this context, the following major transactions are of note:
    • disposal by ACS and GIP to Brookfield (through its subsidiary TerraForm) of Saeta Yield (owner of 16 wind farms and five solar thermal plants in Spain);
    • disposal by Acciona to ContourGlobal of five solar thermal plants with an aggregate installed capacity of 250MW;
    • disposal by Centerbridge to Sonnedix of Vela Energy (a major photovoltaic (PV) solar plant developer and operator with an aggregate installed capacity of over 120MW); and
    • as a result of the auctions called by the Spanish government to implement the Specific Remuneration incentive regime for new renewable energy installations, Forestalia, Mirova, General Electric and Engie have announced a joint development agreement for the first 300MW wind farm free of any premiums in Spain. The development shall consist of nine wind farms that follow the first auction of the Specific Remuneration regime. The equity of the project is calculated at €140 million and is shared by Mirova Eurofideme 3 fund (51 per cent), GE Energy Financial Services (25 per cent), Engie (15 per cent) and Forestalia (9 per cent). Debt of €170 million shall be provided as a green project finance loan. Engie shall be the offtaker under a 12-year-term PPA;
  5. coupled with these major transactions, an increasing consolidation of the major players in the renewable energy industry in Spain;
  6. an inncrease in the interest of oil and gas companies (e.g., Repsol and Cepsa) in the development of renewable energy projects;
  7. the issuing of the report of the Committee of Experts on Energy Transition, which recommends specific measures to ensure compliance by Spain with its obligations under the Paris Agreement on climate change;
  8. the international arbitration awards against the Kingdom of Spain as a result of the systemic change introduced by Royal Decree-Law 9/2013 represent another key landmark. In 2018, three arbitration courts ruled against Spain and in favour of the foreign entities Novenergia, Eiser, Masdar and Antin Infrastructure in relation to renewables incentives; and
  9. the first regulatory period for renewable energy installations receiving the Specific Remuneration incentive will end in December 2019 and, consequently, the parameters for the remuneration structure of renewable energy projects may be subject to revision.

III THE POLICY AND REGULATORY FRAMEWORK

Notwithstanding the changes likely to be pursued by the new government as explained above, the renewable energy sector in Spain is still experiencing the consequences of the changes that followed the radical systemic overhaul of the legal regime represented by the following pieces of legislation:

  1. Royal Decree-Law 9/2013, of 12 July 2013, adopting urgent measures for guaranteeing the financial stability of the electricity sector (RDL 9/2013);
  2. Law 24/2013, of 26 December 2013, on the Electricity Sector (Law 24/2013);
  3. Royal Decree 413/2014, of 6 June 2014, governing the generation of power through renewable energies, generation and waste (RD 413/2014); and
  4. Ministerial Order IET/1045/2014, of 16 June 2014, establishing the remuneration parameters for installations for the generation of power through renewable energies, cogeneration and waste (Order 1045/2014);
  5. Ministerial Order IET/1459/2014, of 1 August 2014, approving the remuneration parameters and establishing the awarding mechanism of the Specific Remuneration regime for new wind and PV solar installations in the non-peninsular territories of Spain (i.e., Balearic Islands, Canary Islands, Ceuta and Melilla) (Order 1459/2014); and
  6. Royal Decree 900/2015, of 9 October, regulating the administrative, technical and economic conditions of the modalities of supply or electric energy with self-consumption and production with self-consumption (RD 900/2015).

These new regulations, which constitute the regulatory framework for the development of renewable energy projects, mark a significant departure from the legislation that formerly provided the principal legal basis for most of the existing renewable energy capacity in Spain (PV solar, concentrated solar power, wind and biomass principally), namely Law 54/1997 on the Electricity Sector and its implementing regulations, Royal Decree 661/2007, of 25 May, regulating the activity of production of electric energy under the Special Regime,3 and Royal Decree 1578/2008, of 26 September, on payment for the production of electric energy using PV technology.

However, under the new regulatory framework, and specifically Article 12 of RD 413/2014, which establishes that the Specific Remuneration incentive scheme shall be awarded by means of a competitive tender procedure, a number of new installations are already in development following auctions called by the government. The following three auctions have been held to date:

  1. Auction carried out pursuant to the Resolution of 18 January 2016, of the General Directorate of Energy Policy and Mines (DGPEM), implementing the Specific Remuneration regime for new installations of production of electric energy with biomass and wind technology pursuant to RD 947/2015, of 16 October. In this auction, 200MW for biomass installations and 500MW for PV solar installations were awarded.
  2. Auction carried out pursuant to the Resolution of 19 May 2017, of the DGPEM, implementing the Specific Remuneration regime pursuant to RD 359/2017, of 31 March and Order ETU/315/2017, of 6 April. In this auction 3000MW of new installed capacity (mainly PV solar and wind) was awarded.
  3. Auction carried out pursuant to the Resolution of 27 July 2017, of the DGPEM, implementing the Specific Remuneration regime pursuant to RD 650/2017, of 16 June and Order ETU/615/2017, of 27 June.

i Main features of the Specific Remuneration

Replacement of feed-in-tariff scheme by the Specific Remuneration

RDL 9/2013 replaced the former feed-in tariff (FIT) scheme with the remuneration complement called the 'Specific Remuneration', to be paid on top of the electricity market price. The following are the main differences between the FIT and the Specific Remuneration:

  1. While the FIT was applied to the entire electricity production of the renewable plant without any limitation – the higher the production, the higher the revenues – the Specific Remuneration is paid on the basis of the installed power capacity of the PV plant and, as detailed below, is limited to the amount necessary to cover the 'costs required to compete on the market on an equal footing with other technologies, as well as to obtain a reasonable rate of return' (Article 14 of Law 24/2013).
  2. The FIT was fixed (subject only to periodic adjustments in relation to the consumer price index) and remained stable for 25 or 30 years from the commercial operation date, depending whether the renewable energy plant was governed by RD 661/2007 or RD 1578/2008 (in the case of PV solar installations). In contrast, the Specific Remuneration is subject to periodic revisions every three and six years following the procedures detailed below, with the next regulatory review due in December 2019.
  3. Finally, the FIT was determined by the technology and the commercial operation date of each particular installation, while the Specific Remuneration is calculated in relation to a hypothetical determination of the parameters of each installation according to different categories of 'standard facility' – a concept that plays an essential role in the calculation of the Specific Remuneration (see below).

The components of the Specific Remuneration

In exchange for the electricity generated from renewable sources, renewable energy installations now receive the market price (payable by the Spanish electricity network upon receipt of the power produced from the plant) plus the Specific Remuneration consisting of:

  1. A return on investment (RI), which is calculated in relation to the installed power capacity of the plant and enough to cover, if necessary, the investment costs of a standard facility (as detailed below), provided that those costs are non-recoverable through the sale of electricity at market price.
  2. A return on operation (RO), which will cover the difference, if any, between the operating costs (OPEX) of the standard facility and the revenues of the standard facility from the sale of electricity at market price.

The calculation of the Specific Remuneration is made for the entire regulatory life term of the installation (as set forth in Order 1045/2014).

Reasonable rate of return

The reasonable rate of return is the cornerstone of the Specific Remuneration regime.4 To this end the Specific Remuneration shall not exceed the minimum level necessary to cover the costs, thus enabling the undertakings or sponsors of renewable energy plants to compete on equal terms with undertakings using other technologies; and this reasonable return is to be calculated in relation to a standard facility.

The reasonable rate of return shall be calculated, before taxes, on the interest rate yielded by 10-year Spanish government bonds plus a given spread.5

The role of the standard facility

The Specific Remuneration is not calculated on a case-by-case basis but by reference to a standard facility, which will apply to one or many installations with standard, uniform or similar characteristics.

The different categories of standard facility (referred to as IT categories) and the applicable economic parameters are detailed in Order 1045/2014. These parameters will be different according to the technology, the power capacity, the commercial operation date and other relevant features of the installation.

The Specific Remuneration applicable to a particular installation will depend on the economic parameters corresponding to the relevant IT category.

The temporary character of the Specific Remuneration: the regulatory periods

The Specific Remuneration is calculated for a regulatory period of six years, each divided into two regulatory half periods of three years. The first regulatory period runs from 14 July 2013 to 31 December 2019.

During each regulatory half period and regulatory period, the Specific Remuneration is subject to corrections and adjustments linked to different factors, such as the number of operating hours in a given year or the electricity market price. Furthermore, the economic parameters of the Specific Remuneration (always corresponding to an IT category and thus to a standard facility) might be adjusted by the regulator (i.e., the National Commission for Markets and Competition (CNMC)) on an annual basis and reviewed by the government at the end of a regulatory period or regulatory half period – that is to say, every six years or every three years, as the case may be.

The economic parameters of the Specific Remuneration

  1. the RI: calculated per power unit (€/MWh);
  2. the RO: applicable to those technologies with estimated operation costs per power unit higher than the average market price;
  3. the regulatory life term: the Specific Remuneration shall be paid during the regulatory life term of the standard facility (as determined in the corresponding IT category). The installation might be still generating power after the expiry of the regulatory life term, but this will only be remunerated at market price (i.e., it will no longer have any right to the Specific Remuneration incentive);
  4. the net value of the asset: the net value asset is equal to the value of investment of the standard facility per power unit at the initial regulatory half-period life term, and it is calculated according to the methodology included in Annex VI of RD 413/2014; and
  5. the formula for the calculation of the net value of the asset includes the standard value of the initial investment.6 Order 1045/2014 establishes the value of the initial investment for each IT category, and this value remains unaltered through the entire regulatory life term of the installation. Note that, pursuant to Article 13 of RD 413/2014, the calculation of the net value of the asset does not take into account any costs arising from applicable regulations or administrative decisions issued by the relevant regions or municipalities but not in the whole territory of the Kingdom of Spain. For instance, compensation payable to the municipalities for the use of land protected from urban development, and provided for in regional town and country planning laws, would not be included as a cost for the purposes of calculating the net value of the asset.

Corrections and update mechanisms of the Specific Remuneration

The first regulatory period falls between the entry into force of RDL 9/2013 (14 July 2013) and 31 December 2019. Therefore, the first regulatory half period runs from 14 July 2013 to 31 December 2016.

The Specific Remuneration shall be reviewed after each regulatory period and each regulatory half period. In this context, note that all the economic parameters set forth by Order 1045/2014 for each IT category can be modified, with the sole exception of the regulatory life term and the standard value of the initial investment. Note that the reasonable rate of return, although not an economic parameter, is also subject to periodic revision, at the end of every regulatory period. The applicable spread may also be modified by means of a law.

The adjustment mechanisms7 of the Specific Remuneration8 set forth in RD 413/2014 are as follows:

  1. adjustment of annual revenues from the Specific Remuneration as a result of the number of equivalent operating hours; and
  2. adjustment because of market price deviations.

The periodic review and update mechanisms of the Specific Remuneration parameters set forth in RD 413/2014 are as follows:

  1. review of the differential applicable for the determination of the reasonable rate of return;9
  2. review of remuneration parameters;10 and
  3. review of the standard income11 from the sale of electricity.12

In summary, the adjustments made to the Specific Remuneration on a yearly basis are due to factual matters that occur during the year – that is, the number of equivalent operating hours of the standard facility during the year (e.g., whether the hours are lower or higher than originally expected because of climate conditions) and the market price deviations (e.g., if there is an increase in the market price because of a higher demand for power, the Specific Remuneration should 'complement' the price payable for the electricity and not increase it, therefore the Specific Remuneration might be lowered if the price of the electricity increased during the year).

In contrast, the reviews of the Specific Remuneration are aimed at revisiting the parameters of the Specific Remuneration in light of other criteria (irrespective of factual matters regarding the production of energy), such as the overall evolution of the Spanish economy. As the reviews imply a more in-depth analysis of the overall Specific Remuneration, their frequency is limited to three to six years (depending on whether the relevant parameter is to be reviewed each regulatory half period or each regulatory period).

ii The policy background

See the preceding section for details of the policy background.

iii The regulatory framework

The general regulation of renewable energy (and particularly the economic regime) is the responsibility of the Spanish parliament and is developed by the central government through royal decrees, and by the Ministry of Energy and Industry through ministerial orders and resolutions. The Spanish autonomous regions are entitled to regulate the development of renewable energy projects and may introduce additional requirements in relation to projects to be developed in the relevant territories.

As provided for in Law 3/2013 of 4 June 2013, the independent regulator, the CNMC, plays a significnt role in the development of renewable energy projects. To this end, the CNMC has, inter alia, the following authority:

  1. to establish, by means of circulars, the toll calculation methodology;
  2. to supervise the management and allocation of connecting capacity, the time spent by transmission and distribution companies in carrying out connections and repairs, and the mechanisms designed to ease congestion in network capacity;
  3. to supervise the conditions and charges for connection applicable to new producers of electricity;
  4. to manage the system for guaranteeing the origin of electricity from renewable sources and from high-efficiency cogeneration;
  5. to publish the end prices of the electricity market, based on information from the market operator and system operator;
  6. to issue reports in applications for authorisation, amendment or closure of facilities, in the process of energy planning, and in applications for approval or authorisation of economic or remuneration regimes;
  7. in relation to legislation on energy, to issue circulars to implement and enforce rules contained in royal decrees and in orders of the Ministry of Industry, Energy and Tourism, which authorises the CNMC for that purpose; and
  8. to perform any other functions that may be conferred on it by act or royal decree.

iv Procedural requirements

The development of renewable energy projects requires fulfilment of the following steps.

Access to and connection permits for transmission and distribution networks

  1. Prior to any request for access to the grid, a grid bond should be deposited with the central government or with the autonomous region (as applicable) for an amount of 10€/kW This grid bond shall be cancelled upon obtaining the relevant authorisation for commissioning.
  2. Access and connection permits shall last for five years. If the relevant installation ceases to pump electricity into the grid for more than three years (other than as a result of temporary closure of the facility), the relevant permits shall expire.

Substantive administrative permits

The following administrative permits are required for the construction and commissioning of renewable energy plants:

  1. preliminary administrative permit: this permit is managed together with the environmental impact assessment and allows the construction of a specific installation under specific conditions, and establishes the time frame for the request of the approval of the relevant project;
  2. administrative authorisation for construction: allows the construction of the relevant installation. The developer should submit a construction project together with a responsible declaration evidencing compliance with the applicable rules. It is possible to manage and obtain the administrative authorisation for construction and the preliminary administrative permit simultaneously. Note that the environmental impact assessment should be granted prior to the administrative authorisation for construction; and
  3. authorisation for exploitation: once the project is executed this authorisation permits installations to be connected to the grid and commercial exploitation to commence.

The authority to grant these authorisations lies with the DGPEM in relation to installations with a capacity over 50MW or when they exceed the territorial limits of one autonomous region. In other cases, the authority to grant the authorisation lies with the relevant autonomous regions. The term for the grant of the relevant authorisations is one year for those granted by DGPEM and six months in other cases. If no permit is granted within this term, it shall be deemed that the request has been denied.

Contracts with grid operators

The developers of renewable energy plants ought to enter into a contract to regulate the technical relationship between them and the relevant distribution company. The contract should regulate at least: (1) connection and measurement points; (2) quantity and quality features of the energy supplied (capacity, forecast of production); (3) grounds for termination or amendment of the contract; and (4) conditions for the exploitation of the connection.

Specific Remuneration regime registry

A necessary condition for recognition of the Specific Remuneration regime (RRE) is that the installations are registered with the RRE registry. This registration has two phases: pre-assignment and final. The authority to approve the RRE registration lies with DGPEM. The procedure for registration following the latest auctions has been as follows:

  1. RRE registration with pre-assignment status: once the result of the auction has been published, the relevant projects should be registered with the RRE provided that the relevant developers have deposited the corresponding guarantee (60€/kW). DGPEM then has three months to dictate and issue the resolution to register the projected installations with pre-assignment status. This term may vary in each auction. The developer then has 12 months to submit the construction authorisation to DGPEM.
  2. RRE registration with exploitation status: once the plants concerned have been built within the term established by DGPEM, the developers should request RRE registration with exploitation status within one month of completion of construction.

Administrative Registry for Production Installations under the Special Regime

All installations for the production of electric energy (whether receiving the Specific Remuneration or not) should be registered with the Administrative Registry for Production Installations under the Special Regime (RAIPRE). The procedure for RAIPRE registration consists of two phases: the preliminary phase (once the authorisation for provisional exploitation for testing is obtained and the technical contract with the grid has been entered into) and the phase for final registration (once the authorisation for final exploitation has been obtained). Both the preliminary and the final registration shall be agreed within one month of the registration request.

The authority for approval of the registration lies with the same authority that is competent for the granting of the administrative authorisation (i.e., DGPEM or the relevant body in the applicable autonomous region).

In addition to the above requirements, it is necessary to obtain the relevant environmental authorisations and licences to be granted by the relevant autonomous region, as well as municipal licences for works and operation. Depending on the location of the relevant plant, certain additional licences may also be required (e.g., use of public waters, rights of way or passage, easements).

IV RENEWABLE ENERGY PROJECT DEVELOPMENT

i Project finance transaction structures

The typical structure for developing renewable projects in Spain consists of the incorporation of a special purpose vehicle (SPV) that will become the holder of the relevant renewable energy project. In the case of a joint project undertaken by a group of entities, a holding structure with a number of SPVs is often used.

Although in the past financial institutions have shown a bigger appetite for projects with a FIT, the change of regime and the increasing number of non-FIT projects have turned the attention to merchant project finance. Increasingly corporate PPAs are used as an additional element to bring stability and predictability in the cash flows and mitigate any potential uncertainty represented by the RRE and the three- and six-year revisions.

In the case of existing projects, the new regime has introduced a number of changes and amendments to existing documentation, although the structure of this documentation (facility agreement, security agreement, base-case and swap agreements) remains similar. Commercial banks and development banks are the main participants providing financing for new projects, although project bonds are an instrument used increasingly by developers.

The main changes under the new regime are as follows:

  1. Review and amendment of operation and maintenance (O&M) contracts: as some of the regulatory changes have impacted on the customary scope of work for O&M contracts, a review has largely been used to redefine the services required under the new O&M contracts.
  2. Cash-sweep mechanism: in addition to the payment cascade mechanisms to provide for the retention of any available cash if the debt service coverage ratio falls below the agreed thresholds, a general cash-sweep mechanism has been introduced so that any excess cash (or at least a portion thereof) is retained by the financing entities to be applied to the early repayment of the facility, so that the base case is rebalanced and improved annually. It might be agreed, as an alternative, to limit the cash-sweep mechanism as needed to fulfil the terms of the base case following the review or adjustment of the Specific Remuneration. Through the cash-sweep mechanism, the financing entities would ensure that excess cash (if any) is available following an unfavourable review of the Specific Remuneration.
  3. Extension of the tenor: depending on the term of the regulatory life of each particular renewable energy plant, the tenor of the facilities may have been extended.
  4. Review and adjustment of the quotas or instalments at each regulatory half period or regulatory period: as explained above, the regulatory changes have introduced a mechanism for the review or adaptation of the Specific Remuneration at the end of each regulatory half period or regulatory period. By definition, the reasonable rate of return and other parameters may be reviewed and lowered from one regulatory half period or regulatory period to another and, thus, existing projects may have less income available to repay applicable instalments under existing facility agreements for the subsequent regulatory half period or regulatory period if, as a result of the review, the remuneration for the plant is lowered. To avoid any defaulting scenarios, and to increase certainty for the financing entities that the relevant obligor will be capable of adapting to any changes in the Specific Remuneration resulting from a review or adjustment at the end of a regulatory half period or regulatory period, the relevant financing agreements may (1) set out a mechanism for the review and adjustment of the relevant instalments (together with the tenor of the facility) at the beginning of each regulatory half period or regulatory period and (2) establish a shareholder support mechanism, by virtue of which direct or indirect shareholders of the relevant SPV would commit to repay as needed any shortfall of the instalments (through the regulatory half period or regulatory period) by using (1) any available cash according to the cash-sweep mechanism; or (2) any additional equity that the relevant guarantors should contribute (as subordinated debt or share capital) to the relevant SPV.

ii Distributed and residential renewable energy

Distributed and renewable energy will largely depend on whether the proposed legislation, sponsored by the new ruling party in Spain, will be finally passed, as explained above. Should this be the case, there will certainly be an increased appetite for self-consumption and distributed generation. The principal participants will be the incumbent distribution companies, which will be in a unique position to offer integrated services (installation, operation and financing of new facilities).

V CONCLUSIONS AND OUTLOOK

It is unlikely that the main legislation (i.e., Law 24/2013 and RD 413/2014) will be significantly amended.

Despite the announcements made by the former government proposing to introduce a 30 per cent haircut for the Specific Remuneration applicable to renewable energy installations, as a result of the energy policy of the new government it is unlikely that significant changes will occur in the next revision, due in December 2019.

The need to comply with the Paris Agreement and the EU 'Winter Package' regulations will result in an increase in the percentage of renewable energy in the Spanish energy generation mix. In this context, a new set of auctions may be convened, although the growing number of merchant projects, coupled with corporate PPAs, will also contribute to an increase in the number of renewable energy projects. As to project financing, many analysts have pointed out the increased use of project bonds to finance new renewable energy projects.

The development of new renewable energy projects will raise other questions regarding, for example, the need to expand and reinforce the grid and to increase interconnections with Portugal and France.

Self-consumption shall be favoured and carbon power plants are likely to be decommissioned. However, it is uncertain whether the useful life of nuclear power plants will be extended beyond 40 years. The level of energy prices to be paid by final consumers will play a significant role in determining this.


Footnotes

1 Hermenegildo Altozano is a partner at Bird & Bird. This chapter has been prepared with the assistance of Paloma Belascoain, a senior associate at the firm.

2 Draft law to amend Law 24/2013, of 26 December on the electricity sector, with regard to the authorisation procedure for the closure of electric generation facilities.

3 The economic regime under Royal Decree 661/2007 (RD 661/2007) and Royal Decree 1578/2008 (RD 1578/2008).

4 Under the Special Regime, the 'reasonable rate of return' was an undetermined or undefined concept introduced by Law 54/1997, which ensured that the economic regime or FIT would guarantee at least this reasonable rate of return (thus functioning as a minimum threshold). Under the Specific Remuneration, the reasonable rate of return is no longer an undefined term but is now a concrete element of the formula, and one which constitutes a true cap on the regulated remuneration payable to the project. Therefore, once the PV plant has reached the cap fixed at the reasonable rate of return (which is determined by regulation), the PV plant will have no further right to receive the Specific Remuneration.

5 The reasonable rate of return shall be determined according to a spread set by means of a law (to be enacted by the Spanish Congress), and which may be subject to review.

6 As part of the formula for the calculation of the RI, RD 413/2014 (Article 16.2) includes the net value of the asset as one of the items to be calculated. Furthermore, the net value of the asset is further calculated pursuant to the formula laid down in Annex VI of RD 413/2014, which takes into account the standard value of the initial investment.

7 Note that the mechanism established by the RD 413/2014 sets forth two types of review and adjustment: (1) adjustments on a yearly basis aimed at correcting annual revenues from the Specific Remuneration (adjustments due to the number of equivalent operating hours for the year and market price deviations); and (2) review after a regulatory half period or regulatory period of the value of certain parameters within the formula for the calculation of the Specific Remuneration. Adjustments will only stand for a year, whereas the reviews will stand for the entire regulatory half period or regulatory period, as the case may be.

8 Note that the application of the mechanism adjustment may result in an increase or decrease of the Specific Remuneration.

9 Note that the differential applicable for the determination of the reasonable rate of return may be reviewed after each regulatory period.

10 Note that the remuneration parameters (except the regulatory life term and the standard value of the initial investment) may be reviewed after each regulatory period.

11 Note that the 'standard income from the sale of electricity' is a pre-estimate of the income that the standard facility (in usual conditions) should receive for the sale of electricity, which is different from the adjustment due to market price deviation, which only takes into account the actual deviations that the price of the electricity has suffered during a given year (as it might have an impact on the actual Specific Remuneration payable in that year).

12 Without prejudice to a more detailed description in Table II of Schedule 2, note that the standard income from the sale of electricity may be reviewed after each regulatory half period.