I INTRODUCTION

Following the political turmoil resulting from the unexpected, and successful, motion of censure (vote of no confidence) on 1 June 2018 – with the governing conservative Popular Party being replaced by the Spanish Socialist Workers' Party (PSOE) – the new government adopted a number of legislative measures affecting the development of renewable energy projects in Spain. The general election held on 28 April 2019 resulted in another term for a PSOE-led government. Although the party does not have a majority in Parliament, development of renewable energies is expected to continue to meet the targets of the Strategic Energy and Climate Framework, which is based on three pillars: the proposed Climate Change and Energy Transition Law, the National Integrated Energy and Climate Plan 2021–2030, and the Just Transition Strategy. These three pillars are expected to be approved in the coming months.

As regards renewable energy, the proposed Climate Change and Energy Transition Law establishes that the government will convene auctions to grant economic incentives to promote the commissioning of at least 3,000MW of renewable facilities each year. Obviously, these significant objectives require certain measures to facilitate the integration of intermittent and non-manageable technologies into the existing system. To this end, hydropower plants (particularly reversible hydropower plants) will play a significant role.

The new Climate Change and Energy Transition Law is also expected to take into consideration 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 committee's report proposes modifying the current financing of renewable energy projects, by means of a surcharge to be imposed on all sources of energy.

During the period between the vote of no confidence and the general election of 28 April 2019, the government was very active in relation to regulation of renewable energies, introducing a very ambitious self-consumption regime, which is meant to facilitate the development of renewable small-scale facilities (particularly photovoltaic (PV) solar).

In addition to introducing these specific measures promoting self-consumption (see below for further details), the new government is also expected to speed up the drafting and approval of the proposed Climate Change and Energy Transition Law, which is very likely to result in an incentive for renewable energies with a view to decarbonising energy production to comply with the Paris Agreement and EU targets. The new energy policy will result immediately in the closing of existing carbon power plants.

II THE YEAR IN REVIEW

Installed following its successful vote of no confidence in the previous administration, the government undertook an intensive programme of regulatory activity regarding renewables, including the following measures:

  1. Royal Decree-law 15/2018, on urgent measures for energy transition and consumer protection, which has removed the existing regulatory obstacles for the development of self-consumption and has introduced the following three principal elements:
    • recognition of the right to self-consumption of electricity without any charges (i.e., access tolls);
    • recognition of the right to shared self-consumption of electricity; and
    • the simplification of related administrative procedures.
  2. Royal Decree 244/2019, which regulates the administrative, technical and economic conditions for the self-consumption of electric energy, further develops the provisions of Royal Decree-law 15/2018.

These regulations have removed the obstacles presented by Article 9 of Law 24/2013 on the Electricity Sector, and Royal Decree 900/2015, which regulated 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 imposed a number of technical, administrative and economic barriers to electric energy self-consumption.

Another important development in relation to the development of renewable energies has been the publication by the National Commission on Markets and Competition (CNMC) of the methodology for the calculation of the reasonable rate of financial return for activities in the electricity sector for the period 2020–2025. According to the CNMC methodology, the reasonable return for the production of electric energy from renewable sources, cogeneration and waste is 7.09 per cent for the period 2020–2025. The methodology is based on the weighted average cost of capital (WACC) with the aim of guaranteeing a reasonable return to encourage suppliers of financial resources to fund the financing of renewable energy plants.

It should also be noted that the significant increase in the development of renewable energy projects is causing certain problems regarding access and connection of the new renewable energy installations to the distribution and transmission grids. To remedy this situation, the government is currently working on a decree regulating access and connection. The proposed legislation reaffirms the use of the grid-bond mechanism to secure access to the grid, and that access should be available under transparent, objective and non-discriminatory conditions.

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

  1. A first component that will reflect the overrun of the most efficient renewable energy facilities. However, given that the results of the most recent auctions indicate that overrun for renewable energy facilities is nil at current market prices, the first component of the surcharge will be also nil.
  2. A second, complementary, component 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; and
  2. the fostering of renewable energy projects.

In the context of fostering renewables, 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 accordance with the new CNMC methodology (see Section III.i, below, for details of the Specific Remuneration Regime 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. new projects are to be financed on a 'merchant' basis (rather than on the basis of a feed-in tariff or premium);
  3. an increase in the number of corporate power purchase agreements (PPAs) entered into in the past year, with some recent PPAs with a tenor of 20 years;
  4. the consolidation of the interest of infrastructure funds in acquiring renewable energy companies or assets in Spain and, in this context, the following major transactions are of note:
    • Ardian's acquisition of Renovalia's wind farms from Cerberus and BlackRock;
    • Brookfield's acquisition of 50 per cent of X-Elio from KKR; and
    • Luxcara's acquisition of a PV solar portfolio from Forestalia;
  5. an increase in the interest of major incumbents (e.g., Iberdrola, Naturgy, Endeesa) and oil and gas companies (e.g., Repsol and Cepsa) in the development of renewable energy projects; and
  6. landmark international arbitration awards made against the Kingdom of Spain as a result of the systemic change introduced by Royal Decree-Law 9/2013 (in 2018, three arbitration courts ruled against Spain and in favour of the foreign entities Novenergia, Eiser, Masdar, Antin Infrastructure, REEFF and Foresight in relation to renewables incentives).

Finally, it should be noted that 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 in accordance with the new CNMC methodology.

III THE POLICY AND REGULATORY FRAMEWORK

In the recent past, Spain undertook a radical systemic overhaul of the legal regime for the renewable energy sector by adopting the following pieces of legislation:

  1. Royal Decree-Law 9/2013, of 12 July 2013, adopting urgent measures to guarantee 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 establishing the Specific Remuneration Regime (see Section III.i);
  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); and
  5. Ministerial Order IET/1459/2014, of 1 August 2014, approving the remuneration parameters and establishing the award mechanism for the Specific Remuneration Regime for new wind and PV solar installations in the Spanish non-peninsular territories (i.e., the Balearic Islands, Canary Islands, Ceuta and Melilla).

Notwithstanding the consequences of these radical reforms, and the prospect of the above-noted changes likely to be pursued by the new government, operators in the sector have adjusted to the new regulatory framework, and the renewable energy industry is now experiencing significant development following publication of the government's plans to achieve 42 per cent of electricity consumption from renewable sources by 2030.

i The Specific Remuneration Regime

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

Pursuant to RDL 9/2013 and RD 413/2014, the former feed-in tariff (FIT) scheme in place under the special regime applicable to electricity produced from renewable energy sources (the Special Regime) was replaced by the Specific Remuneration Regime, which introduced a 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 a renewable energy 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'.2
  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).

Components of the specific remuneration

In exchange for 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 plus 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; and
  2. a return on operation (RO), which will cover the difference, if any, between the operating costs 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 (pursuant to Order 1045/2014).

Reasonable rate of return

The reasonable rate of return is the cornerstone of the Specific Remuneration Regime.3 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. As explained above, the new CNMC methodology bases the calculation of the reasonable rate of return on the WACC.

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)4 and the applicable economic parameters are detailed in Order 1045/2014. These parameters will vary 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.

Temporary character of the specific remuneration: regulatory periods

The specific remuneration is calculated for a regulatory period of six years, divided into two three-year regulatory half periods. The first 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 annually by the regulator (i.e., the CNMC) and reviewed by the government at the end of a regulatory period or regulatory half period (i.e., every six or three years, as the case may be).

Economic parameters of the specific remuneration

The economic parameters of the specific remuneration are as follows:

  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: equal to the value of investment of the standard facility per power unit at the initial regulatory half-period life term, and calculated according to the methodology included in Annex VI of RD 413/2014; the formula for the calculation of the net asset value includes the standard value of the initial investment.5

Order 1045/2014 establishes the value of the initial investment for each IT category, and this value remains unaltered throughout the regulatory life term of the installation. Note that, pursuant to Article 13 of RD 413/2014, the calculation of the net asset value does not take into account any costs arising from applicable regulations or administrative decisions issued by relevant regions or municipalities but not throughout the whole territory of the Kingdom of Spain; for instance, compensation payable to 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 asset value.

Specific remuneration correction and update mechanisms

The first regulatory period fell between the entry into force of RDL 9/2013 (14 July 2013) and 31 December 2019. Therefore, the first regulatory half period ran 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 out 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 mechanisms6 of the specific remuneration7 are as follows:

  1. adjustment of the specific remuneration (i.e., the revenues obtained by the relevant plant) 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 established in RD 413/2014 are as follows:

  1. review of the differential applicable for the determination of the reasonable rate of return;8
  2. review of remuneration parameters;9 and
  3. review of the standard income10 from the sale of electricity.11

In summary, the adjustments made annually to the specific remuneration reflect factual matters that occur during the year, namely the number of equivalent operating hours of the standard facility during the year (e.g., whether the number of hours is 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 paid 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 periodic reviews are aimed at revisiting the parameters of the specific remuneration in light of other criteria (irrespective of factual matters regarding energy production), such as the overall evolution of the Spanish economy. As the reviews imply a more in-depth analysis of the applicable specific remuneration overall, 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 Policy background

See the preceding section for details of the policy background.

iii 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 significant 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 and connection to transmission and distribution networks

To obtain access to and connection permits for transmission and distribution networks, the following conditions apply:

  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 General Directorate of Energy Policy and Mines (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 of eligibility for the Specific Remuneration Regime is that the installations are registered with the Specific Remuneration Regime Registry. This registration has two phases: pre-assignment status and exploitation status. The authority to approve the Specific Remuneration Regime registration lies with DGPEM. Following the most recent auctions, the registration procedure has been as follows:

  1. Specific Remuneration Regime registration with pre-assignment status: once the result of the auction has been published, the relevant projects should be registered with the Specific Remuneration Regime provided that the relevant developers have deposited the corresponding guarantee (€60/kW). DGPEM then has three months to formulate 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. Specific Remuneration Regime registration with exploitation status: once the plants concerned have been built within the term established by DGPEM, the developers should request Specific Remuneration Regime 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: preliminary (once the authorisation for provisional exploitation for testing is obtained and the technical contract with the grid has been entered into) and 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

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 Specific Remuneration Regime 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, whereby direct or indirect shareholders of the relevant SPV would commit to repay any shortfall in the instalments (through the regulatory half period or regulatory period) as necessary, 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.

V CONCLUSIONS AND OUTLOOK

Despite announcements by the former government proposing a 30 per cent haircut for the specific remuneration applicable to renewable energy installations, the energy policy of the new government makes it unlikely that significant changes will occur in the next revisions, due in December 2019. The methodology issued by the CNMC serves as a guide for the revisions, with the calculation of the reasonable return being based on the WACC.

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 is clearly favoured and significant development in this field is expected. Carbon power plants will be gradually decommissioned, although the useful life of nuclear power plants will probably be extended beyond 40 years, despite previous announcements to the contrary by the government.


Footnotes

1 Hermenegildo Altozano is a partner at Bird & Bird.

2 Article 14 of Law 24/2013.

3 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 feed-in tariff would guarantee at least this reasonable rate of return (thus functioning as a minimum threshold). Under the Specific Remuneration Regime, the reasonable rate of return is no longer an undefined term but is now a concrete element of the formula, and one that constitutes a true cap on the regulated remuneration payable to the project. Therefore, once the photovoltaic (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.

4 Instalación tipo, i.e., 'standard installation' or 'standard facility'.

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

6 Note that the mechanism established by RD 413/2014 sets out two types of review and adjustment: (1) adjustments on a yearly basis aimed at correcting the specific remuneration (adjustments due to the number of equivalent operating hours for the year and market price deviations, which will result in the adjustment of the annual revenues obtained by the relevant plant); 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.

7 Note that the application of the mechanism adjustment may result in an increase or decrease of the specific remuneration set out in RD 413/2014.

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

9 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.

10 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 income adjusted on account of market price deviation, which only takes into account the actual deviations that the price of electricity has undergone during a given year (as these market price deviations might have an impact on the actual specific remuneration payable in that year).

11 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.