Electricity regulation in Spain: overview

A Q&A guide to Electricity regulation in Spain.

The Q&A gives a high level overview of the domestic electricity market, including domestic electricity companies, electricity generation and renewable energy, transmission, distribution, supply and tax issues. It covers the regulatory structure; foreign ownership; import of electricity; authorisation and operating requirements; trading between generators and suppliers; rates and conditions of sale and proposals for reform.

To compare answers across multiple jurisdictions, visit the energy and natural resources Electricity regulation Country Q&A tool.

This Q&A is part of the global guide to energy and natural resources. For a full list of content visit www.practicallaw.com/energy-guide.

Ignacio Borrego and Ana Calvo, Watson, Farley & Williams
Contents

Overview

Electricity market

1. What is the role of the electricity market in your jurisdiction?

Overview

The electricity sector in Spain has been governed for 16 years, by the Electricity Sector Act 54/1997, dated 27 November, which liberalised the electricity market and incorporated Directive 96/92/EC (later, Directives 2003/54/EC and 2009/72/EC, concerning common rules for the internal market in electricity, were also incorporated into Spanish law by means of amendments of Act 54/1997).

However, Act 54/1997 has proved insufficient to ensure the financial stability of the electricity system (among other reasons because the system of remuneration for regulated activities lacked the flexibility to adapt to significant changes in the electricity market or the evolution of economy) and, since 2010, Act 54/1997 was repeatedly amended (Royal Decree-Laws 14/2010, 1/2012, 13/2012, 20/2012, 29/2012, Laws 15/2012, 17/2012 and Royal Decree-Laws 2/2013 and 9/2013).

In December 2013, a new Electricity Sector Act, 24/2013, dated 26 December (ESA), was approved.

This new ESA contains the main electricity sector regulation in Spain and is aimed at providing the regulatory certainty, ensuring effective competition in the electricity sector and the economic and financial sustainability of the electricity system.

Recent trends

Continuing the trend from 2008, electricity demand fell in 2012 by 1.3% compared to 2011, and in 2013 by 2.3% compared to 2012. Demand is expected to slightly increase in 2014 (1.2%) and, to recover very moderately from then onwards.

In 2013 the total installed power in Spain (102,000 MW) and the available power (52,000 MW) exceeded the peak power demand (45,000 MW).

There are therefore uncertainties facing future electricity generation due to the:

  • Current decline and future slight rise in demand.

  • Power capacity excess.

  • Foreseeable lack of implementation of new investment projects.

The planned new generation capacity to be installed in mainland Spain (1,000 MW for 2013 to 2017) is smaller than the expected capacity to disappear due to the winding up of facilities, mainly fuel/gas and coal facilities (2,250 MW for 2013 to 2017). The commissioning of new renewables installations is basically expected in the non-mainland territories (550 MW of wind technology and 300 MW of photovoltaic technology).

A distinctive feature of the Spanish electricity market is the significant shortfall between the electricity companies' overall regulated revenues (mainly collected from access charges) and the corresponding costs (including transmission and distribution companies' remuneration, costs related to non-mainland generation and incentives for renewable energy installations under the special regime) (see Question 8).

At the end of 2011, the total deficit stood at EUR24 billion. The energy regulator released figures on Spain's tariff deficit showing that it increased by EUR4.3 billion in 2012 and by EUR3.18 billion in 2013. The cumulative tariff deficit amounts to around EUR30 billion.

Due to the measures recently adopted in 2012 and 2013 to reduce the annual tariff deficit, the energy regulator has indicated that 2014 expected regulated revenues could be sufficient to cover the corresponding costs (although there is still uncertainty as to the financing of activities in the mainland territories from the state budget and on obtaining all income tributes from Law 15/2012). These measures include:

  • The new ESA.

  • New taxes included in Law 15/2012.

  • Suspension of incentives for all new renewable energy installations by Royal Decree-Law 1/2012.

  • Suspension of licensing procedures in almost all regulated transmission infrastructures by Royal Decree-Law 13/2012, of 30 March (RDL 13/2012).

 

Regulatory structure

2. What is the regulatory framework for the electricity sector?

Regulatory framework

The regulatory principles on which the Electricity Sector Act (ESA) is based are:

  • The separation between regulated activities (transmission and distribution) and those which can be developed in conditions of free competition (generation and supply).

  • The liberalisation of contracting and selection of suppliers by end consumers.

  • Freedom of access to transmission and distribution networks through the payment of charges.

  • The establishment of a system operator to be responsible for technical management, and a market operator to be responsible for the financial management of the system.

  • The principle of economic and financial sustainability of the electricity system, which implies that any regulatory measure in relation to the electricity sector leading to an increase in cost to the electrical system or a reduction in income should incorporate an equivalent reduction of other cost items or an equivalent increase in revenue to ensure system balance.

The gas and electricity market regulator in Spain is the National Markets and Competition Commission (CNMC).

Under the ESA, electricity generation, transmission and distribution cannot be undertaken without a licence. Electricity supply is subject to prior communication to the administrative authorities.

Regulatory authorities

The main regulatory authorities include the:

  • Ministry of Industry, Energy and Tourism (Ministerio de Industria, Energía y Turismo). This is responsible for setting Spanish energy policy and its implementation, including the development of regulatory proposals and, among other things, approvals of tariff structures, energy product prices, network access tolls and electricity charges in accordance with current legislation.

    It also has duties in relation to the licensing of facilities, alongside those of the autonomous communities (regions).

  • National Markets and Competition Commission (Comisión Nacional de los Mercados y la Competencia) (CNMC). This is the regulatory body, under the Ministry of Economy and Competitiveness, for the energy sector. Its primary duty (in the electricity sector) is to supervise and control the correct operation of the electricity market. It issues circulars in relation to the electricity sector, and is in charge of the development and enforcement of rules in the context of energy legislation, supervising the obligations of players in the electricity market and the proper operation of the energy system such as:

    • network capacity;

    • functional and effective unbundling of activities;

    • competition, transparency and contractual freedom;

    • tariffs, prices and conditions of supply;

    • energy auctions;

    • reporting procedures to authorise, modify or close installations.

  • Ministry of Agriculture, Food and Environment (Ministerio de Agricultura, Alimentación y Medio Ambiente). This proposes and implements government policy in relation to climate change and environmental protection (among other things), without prejudice to the role of regional bodies which have related duties in their corresponding regions.

  • Nuclear Safety Council (Consejo de Seguridad Nuclear). This body ensures the safe operation of nuclear and radioactive facilities by establishing preventive and corrective measures against radiological emergencies, whatever their origin.

Each of the autonomous communities has regulatory authorities with responsibilities for electricity activities carried out in their territory, typically regional departments for industry or energy.

See box, The regulatory authorities.

 

Electricity companies

Main companies

3. What are the main companies involved in electricity generation, transmission, distribution and supply?

Generation

Electricity generation and supply in Spain is dominated by the following energy companies, notable for their large market share:

  • Endesa.

  • Iberdrola.

  • Gas Natural Fenosa.

  • EDP/Hidrocantábrico.

  • E.on.

Transmission

Red Eléctrica de España (REE) has a key role in the functioning of the Spanish electricity system.

REE is the electricity system operator in Spain, the sole transmission company and operates on an exclusive basis (Electricity Sector Act (ESA)).

Additionally, recent Law 17/2013, of 29 October, established that REE is to be the owner of pumping facilities in non-mainland electricity systems, when the pumping facilities have as their main objectives:

  • The security of supply

  • Security of the system.

  • Integration of renewable energy unmanaged.

Distribution

Electricity distribution in Spain is also dominated by the same companies notable for their large market share in generation, see above, Generation. In addition, there are a number of independent distribution network operators who own and operate electricity distribution networks outside of the main distribution areas.

Supply

Currently, all consumers are supplied by a marketer. However, a distinction can be drawn between:

  • Free marketers. Free marketers are free to set and negotiate terms of supply to consumers. At present, there are 27 active free traders in the market.

  • Reference marketers. Reference traders must, under a public service obligation, provide electricity, in accordance with a supply contract determined by the central government, to consumers under the voluntary price for the small consumer or the last resort tariff (ESA and Royal Decree 216/2014, of 28 March) (see Question 22). This means that almost all domestic consumers and small businesses are entitled to be provided by reference traders. This represents 25 million consumers in the Spanish market, taking into account that from the above 25 million, 16 million exercise their right. The reference traders are presently:

  • Endesa Energía XXI, S.L.U.

  • Iberdrola Comercialización de Último Recurso, S.A.U.

  • Gas Natural S.U.R. SDG, S.A.

  • E.ON Comercializadora de Último Recurso, S.L.

  • E.ON Comercializadora de Último Recurso, S.A.

  • Cide HC-Energía S.L.

  • Empresa de alumbrado eléctrico de Ceuta, S.A.

  • Gaselec diversificación, S.L.

Unbundling requirements

Under the ESA, commercial companies engaging in one or more of the regulated activities (system operation, transmission or distribution) cannot develop production, trading or energy recharge activities or make investments in companies engaged in these activities. However, different companies can engage in both regulated and unregulated activities within the same corporate group, subject to certain requirements.

In line with the above, following the amendment made by RDL 13/2012, the Council of the energy regulator, in its session held on 19 July 2012, certified REE's compliance with the requirements established in Article 9 of Directive 2009/72/EC concerning common rules for the internal market in electricity, for them to be approved as transmission system operator under the ownership unbundling model (Ownership Unbundled TSO).

 

Foreign ownership

4. Are there any restrictions concerning the foreign ownership of electricity companies or assets?

The Ministry of Industry, Energy and Tourism must be notified of (Provision Nine of Law 3/2013, of 4 June):

  • The acquisition of shares in a percentage of the equity to grant a significant influence in the management of companies that, directly or through companies controlled by them, carry out regulated activities (system operation, market operation, transmission or distribution) or activities in non-mainland territories, or hold strategic assets (such as nuclear thermal power facilities or coal power plants of particular importance in the consumption of domestic coal).

  • The direct acquisition of such assets.

If the acquisition referred to above is carried out by a non-EU or non-European Economic Area company, and the Minister of Industry, Energy and Tourism considers that there is a genuine and sufficiently serious threat to the security of supply of electricity in the field of the activities of the acquirer, the Minister can establish conditions relating to the exercise of the activity of the companies subject to the acquisition and impose specific obligations on the purchaser to ensure compliance of the security of supply.

 

Import of electricity

5. To what extent is electricity imported?

International electricity exchanges occur through interconnections with France, Andorra, Portugal and Morocco. According to the latest data published, in 2012, exchanges recorded a net export of 11,200 GWh, compared to 6,090 GWh in 2011. This is largely because in 2012 the net balance of trade was exporting to Portugal (7,902 GWh), Andorra (286 GWh), and Morocco (4,897 GWh).

Due to the limited France-Spain interconnection infrastructure, the allocation of available capacity is granted by auction under the capacity allocation rules.

 

Electricity generation and renewable energy

Sources of electricity generation

6. What are the main sources of electricity generation?

According to the latest data released, the main sources of electricity generation in Spain in 2013 were:

  • Wind farms (21.1%).

  • Nuclear fission (21%).

  • Coal (14.6%).

  • Hydropower (14.4%).

  • Combined cycle plants (approximately 9.6% for 2011).

Fossil fuels

Currently, coal and gas are the main fuels used for fossil fuel energy generation in Spain.

Nuclear fission

Nuclear generation amounted to approximately 21% (56,378 GWh) of Spanish electricity production in 2013. The total amount of energy generated by this technology in 2013 was reduced by 8.3% compared to 2012 (mainly due to periods of unavailability for maintenance).

Renewable energy

Renewable energy sources used in Spain include:

  • Hydroelectric generating plants.

  • Photovoltaic.

  • Thermal solar.

  • On-shore wind farms.

  • Off-shore wind farms (please note that, although the regulatory framework is already established for off-shore wind farms, and an objective of 700 MW of installed power with this technology is foreseen, the public tenders for authorising them have not yet started and it is unknown when they may start).

  • Biomass.

Geothermal, wave energy, tidal energy, hot dry rock, geothermal energy, oceanthermal, and ocean current energy are contemplated but not currently used in Spain.

Although they do not use renewable sources, there are also cogeneration installations (producers utilising combined heat and power).

See Question 24.

 
7. Are there any government policies, targets or incentives in place to encourage the use of renewable or low carbon energy?

Government policies/incentives

The support for renewable installations started in 1980 with the establishment of incentives for hydraulic power plants. Later, a feed-in tariff (FIT) regime (including solar, wind, cogeneration and biomass installations) was established in 1994, which was maintained by several subsequent new regulations.

For at least the last seven years, the only economic incentive has been the FIT regime.

Since the entry into force of Royal Decree-Law 1/2012, on 28 January 2012, the FIT regime no longer applies for new renewable installations and is only applicable to existing plants or those not built but already recorded on 28 January 2012 at the Remuneration Pre-assignment Registry.

The recent Electricity Sector Act (ESA), developed by Royal Decree 413/2014, dated 6 June, provides that a FIT regime may be approved in the following months for:

  • A total power of 120 MW of renewable and cogeneration installations (under certain circumstances, and excluding photovoltaic, thermal solar and wind technologies).

  • New photovoltaic installations and wind farms in non-mainland territories.

As established in Directive 2009/28/CE on the promotion of the use of energy from renewable sources (Renewable Energy Directive), the electricity produced from renewable energy sources has priority access to the grid-system.

Renewable energy targets

Royal Decree 661/2007 established renewable energy targets for 2010 (for example, 300 MW for solar photovoltaic plants, 500 MW for thermo solar plants and 20,155 MW for wind farms). Power plants which obtained administrative authorisation and registration before these targets were reached became entitled to the FIT regime established in Royal Decree 661/2007 (under certain conditions).

However, targets for photovoltaic, thermo solar and wind were reached or exceeded in years 2008 and 2009 and, therefore, restrictions to the FIT regime were established (by several regulations, such as Royal Decree 1578/2008, Royal Decree-Law 6/2009 and Royal Decree-Law 14/2010).

Since the renewable installed capacity was high in 2011 and corresponded to the requirements for reaching the 20% share of energy from renewable sources target for 2020 (given by the Renewable Energy Directive), Royal Decree-Law 1/2012 abolished the FIT regime for new renewable installations. Therefore (and although, as referred above, a new, and limited, FIT regime may be approved in the following months) at present it is not clear if Spain will comply with the mandatory national target of 20% for 2020.

See table, Common forms of renewable energy

 
8. What are the main obstacles to the development of renewable energy?

As electricity costs have continuously increased and, at the same time, the government (due to the economic crisis and for political reasons) has not equally increased the tariffs for access to the electricity grid (paid by the consumers), in the last few years there has been a "tariff deficit" (that is, the income obtained from the tariffs has not been enough to cover the electricity companies' costs, including incentives for renewable installations). This difference has been covered by the major electricity companies, but they have a right to recover (with accrued interest) the amounts paid from the tariffs for access to the electricity grid, approved by the government.

Several measures have been approved to reduce the tariff deficit. These measures (include restrictions on the FIT regime for existing renewable installations and the general moratorium on incentives for new renewable installations. Together with the decrease in electricity demand, they amount to clear obstacles for the development of renewables in Spain.

 
9. Are there any plans to build new nuclear power stations?

Spain has six nuclear power stations, with a total of eight reactors:

  • Almaraz I and II.

  • Asco I and II.

  • Cofrentes.

  • Santa Maria de Garoña.

  • Vandellós.

  • Trillo.

In 1994, a moratorium on the nuclear plants that were under construction was adopted, along with compensation to the owners for the costs they had incurred. At present there are no plans to build new nuclear power stations. The Sustainable Economy Act (Ley de Economía Sostenible), passed on February 2011, allows the government to extend the operating licences of existing nuclear power stations (which currently expire between 2014 and 2021).

 

Authorisation and operating requirements

10. What are the authorisation requirements to construct electricity generation plants?

Different approvals and permits must be obtained before a power station can be constructed and operated, but the principal approval is the administrative authorisation.

The construction, operation, modification, transfer and temporary and definitive closure of electric power stations is subject to a previous administrative authorisation (autorización administrative previa) (section 21, Electricity Sector Act (ESA)). The grant of the administrative authorisation is regulated, and is governed by the principles of objectivity, transparency and non-discrimination. The regime contained in section 21 of the ESA is set out in detail in Royal Decree 1955/2000.

Applicants for permits for electricity production facilities must certify the following:

  • Energy efficiency, technical and security conditions of the proposed facilities.

  • Adequate compliance with environmental protection conditions and the minimising of environmental impacts.

  • The circumstances of the site of the installation.

Additionally, the applicant must prove that it holds the required legal and economic capacity as well as technical expertise, as follows:

  • Legal capacity. This implies that applicants must have their own legal personality, and excludes joint ventures (uniones temporales de empresas).

  • Technical expertise. The applicant must have:

    • pursued electricity generation activities for at least the last three years;

    • have among its shareholders at least one with a participation equal to or greater than 25% with experience over the last three years in electricity production;

    • have entered into a technical assistance contract for a period of three years with a company with expertise in electricity production.

  • Economic capacity. The project must be financially viable. This requirement may be waived if the applicant has already been carrying out the activity.

In addition to the administrative authorisation, the following consents must also be obtained from the regional authority before the facilities can enter into service:

  • Approval of the engineering construction project (autorizacion administrativa de construcción) to be awarded before the commencement of the works.

  • The start-up certificate (autorización de explotación).

These administrative consents are awarded by the central government when the capacity of the installation exceeds 50 MW or it exceeds the territory of one of the regions.

Other consents are required, which depend on the size, location and type of power plant. Among these, local permits are particularly important.

For offshore projects, in addition to the administrative consents above, consents for the occupation of maritime areas (regulated by Act 22/1988, of 28 July, on Coasts) are required, as well as an administrative resolution after a tender process, awarding the applicant a reserve of a certain zone.

 
11. Are there any requirements to ensure new power stations are ready for carbon capture and storage (CCS) technology, or requiring a plant to retrofit CC technology once this is ready?

Act 40/2010, of 29 December, on the capture and storage of carbon dioxide, establishes the same rules provided in Directive 2001/80/EC on the limitation of emissions of certain pollutants into the air from large combustion plants (as amended by Directive 2009/31/EC on the geological storage of carbon dioxide). New power stations with 300 MW or higher (and existing ones authorised after 25 June 2009) must assess whether:

  • Suitable storage sites are available.

  • Transmission facilities are technically and economically feasible.

  • It is technically and economically feasible to retrofit facilities for CO2 capture.

If these conditions are met (which will be determined finally by the Ministry of Industry, Energy and Tourism) suitable space on the installation site for the CCS technology must be set aside.

 
12. What are the authorisation and main ongoing requirements to operate electricity generation plants?

The authorisation requirements for operation are the same as for construction, see Question 10.

Electricity generators must perform electricity generation activities under the terms stipulated in their authorisation and, in particular, according to the requirements relating to the safety, availability and maintenance of the installed plant, and environmental conditions. They must also comply with additional obligations, such as reporting to the administration any changes in conditions relating to the consents for the installation, or, when applicable, the presentation of offers for the sale of electricity to the market operator.

 
13. What requirements are there concerning connection of generation to the transmission grid?

The interconnection of generation to the transmission (and distribution) grid is regulated under sections 52 to 66 bis of Royal Decree 1955/2000. The right to access the grid can only be restricted by the lack of necessary capacity, which can only be justified for supply security, regularity, quality and sustainability and economic efficiency reasons. There is a specific procedure for obtaining access to the grid based on the lack of grid reserve capacity in the electricity system. Precedence in connection does not imply consequent preferential access and access restrictions must be supported by market mechanisms.

New generation installations under the special regime (such as renewables and cogeneration facilities) must submit bank guarantees to the regional authority before applying for access to the grid.

 

Electricity transmission

Authorisation and operating requirements

14. What are the authorisation requirements to construct electricity transmission networks?

Several approvals and permits must be obtained before electricity transmission networks can be constructed and operated, but the principal one is the administrative authorisation.

According to section 35 of the Electricity Sector Act, the construction, operation, modification, transfer and definitive closure of electricity transmission networks is subject to a previous administrative authorisation. The detailed regime is regulated in Royal Decree 1955/2000.

Applicants for permits for electricity transmission facilities must have the required legal capacity, technical expertise and economic capacity to carry out the transmission activity. Other permits (such as local permits) are necessary.

 
15. What are the authorisation and main ongoing requirements to operate electricity transmission networks?

The authorisation requirements for operation are the same as for construction, see Question 14.

A holder of electricity transmission facilities must:

  • Conduct its activities as authorised and in accordance with the applicable provisions.

  • Provide continuous transmission services with sustained quality levels.

  • Maintain the facilities' condition and technical suitability

It must also take on a number of additional obligations; for example, allowing agents with a right to access the network to use its facilities.

 

Transmission charges

16. How are the charges and conditions for the transmission of electricity regulated?

Electricity transmission is a regulated activity, which means that the transmission company (REE) receives remuneration for the construction and operation of the transmission installations, paid from incomes from access tolls and other charges (which are paid by the consumers and which also cover other electricity costs, such as distribution or the incentives for renewables).

Access tolls are established by the Ministry of Industry, Energy and Tourism. The access tolls for 2013 are set out in Ministerial Order IET/107/2014, dated 31 January 2014.

Royal Decree 1047/2013, of 27 December 2013, contains a new methodology to calculate remuneration for electricity transmission activity with the aim of achieving a reduction in the remuneration and costs of the electrical system. The principles of the new methodology include:

  • The accrual and payment of remuneration generated by transportation facilities commissioned in year "n" starts from 1 January of year "n+2".

  • Remuneration in respect of investment is made for unamortised assets based on their net value.

  • The rate of financial return is based on the average return in the secondary market of 10-year benchmark government bonds plus a relevant financial spread.

  • The method of remuneration for transport must consider economic incentives, which may be positive or negative, to improve the availability of facilities.

 

Electricity distribution

Authorisation and operating requirements

17. What are the authorisation requirements to construct electricity distribution systems?

Several approvals and permits must be obtained before electricity distribution networks can be constructed and operated, but the principal one is the administrative authorisation (section 39, Electricity Sector Act). The detailed regime is regulated in Royal Decree 1955/2000.

  • The authorisation, which does not grant exclusive use rights, is awarded depending on:

  • The character of the single network system and natural monopoly typical for electricity distribution.

  • Lowest cost, avoiding damages to the holders of existing networks who must provide new supplies that are requested.

In addition, the applicant must have the required legal capacity, technical expertise and economic capacity for the administrative authorisation. Other permits (such as local permits) are necessary.

 
18. What are the authorisation and the main ongoing requirements to operate electricity distribution systems?

The authorisation requirements for operation are the same as for construction, see Question 17.

Electricity distribution companies must:

  • Conduct their activities as authorised and in accordance with the applicable provisions.

  • Provide continuous distribution services with sustained quality levels.

  • Maintain the electricity distribution networks' condition and technical suitability.

  • Take on a set of obligations imposed by the Electricity Sector Act, including, for example, expanding distribution facilities when needed to meet new power demands.

 

Distribution charges

19. How are the charges and conditions for the distribution of electricity regulated?

Electricity distribution is a regulated activity, which implies that the distribution companies receive remuneration for the construction and operation of the distribution installations. As with transmission activity, this remuneration is paid from incomes obtained from access tolls and other charges (which are paid by the consumers and which also cover other electricity costs, such as the incentives for renewables).

The remuneration regime is regulated in Royal Decree 1048/2013, of 27 December 2013 on a similar basis as electricity transmission activity (see Question 16).

The principles of the new methodology include:

  • The accrual and payment of remuneration generated by transportation facilities commissioned in year "n" starts from 1 January of year "n+2".

  • Remuneration in respect of investment is made for unamortised assets based on their net value.

  • The rate of financial return is based on the average return in the secondary market of 10-year benchmark government bonds plus a relevant financial spread.

  • The method of remuneration for distribution must consider economic incentives, which may be positive or negative, in order to improve the quality of supply, reduce losses and fraud.

 

Electricity supply

Authorisation and operating requirements

20. What are the authorisation and the main ongoing requirements to supply electricity systems?

Companies willing to develop activities as energy traders must (section 46, Electricity Sector Act):

  • Inform the competent authority and the Ministry of Industry, Energy and Tourism (which in turn informs the National Markets and Competition Commission (CNMC)) of the start and cessation of its activities and, accompany the communication with a statement of compliance with certain requirements.

  • Comply with the requirements set out in Royal Decree 1955/2000, which includes the applicant having sufficient technical capacity.

  • Demonstrate compliance with these requirements if required by the competent authority; the Ministry of Industry, Energy and Tourism or the CNMC.

Any event which involves a change in any of the information provided in the original statement must be communicated by the applicant within one month of occurrence.

 

Trading between generators and suppliers

21. How is electricity trading (between generators and suppliers) regulated?

Generators can sell their electricity by selling:

  • Into the Spanish electricity pool, the wholesale market, managed by the Spanish market operator (OMIE). This pool or wholesale market is regulated by Royal Decree 2019/1997 and the Electricity Market Operation Rules, approved by a Resolution dated 9 May 2014.

  • Through a power purchase agreement (PPA) with a consumer or trader, known as a "physical bilateral contract" (sections 23 and 24. 4, Electricity Sector Act and sections 19 and 20, Royal Decree 2019/1997). Under a PPA, generators receive the price freely agreed with the consumer or the trader (which would be lower than the pool price). The parties to a PPA (producer and consumer or trader) must fulfil certain requirements, including;

    • being recorded at the corresponding administrative registry;

    • submission of certain guarantees before the system operator and OMIE.

  • There are also certain rules applicable to the execution of the PPA (related to its notification to the system operator and the obligation to comply with the technical restrictions it imposes, among other things).

 

Electricity price and conditions of sale

22. How is the price for electricity and conditions of sale regulated at the consumer and wholesale level?

Consumer

All consumers (including those benefiting from the voluntary price for the small consumer or the last resort tariff, referred below) can enter into a PPA with a free trader, at the price agreed between the parties.

After Royal Decree 216/2014, of 28 March, those consumers with a supply voltage not exceeding 1kv, and whose contracted power is less than or equal to 10 kW, are entitled to buy electricity from a reference trader either at:

  • The voluntary price for the small consumer (this is a maximum price, established by the central government by means of the methodology contained in Royal Decree 216/2014 and published on a daily basis by REE, corresponding to the daily electricity market price).

  • A fixed price for a period of 12 months (this fixed price is freely determined by the reference trader, who is obliged to offer it as an alternative to the voluntary price for the small consumer and to publish it on the National Markets and Competition Commission web page).

The consumers who are considered as "vulnerable" consumers (pending to be determined by the central government, taking into account social, consumption and purchasing power parameters) will be able to buy electricity from reference traders at a last resort tariff (which is the voluntary price for the small consumer with a 25% discount).

Finally, consumers who do not met the requirements for the voluntary price for the small consumer and who temporarily have not entered into a valid supply contract with a free trader in the market, must pay a last resort tariff (which is the voluntary price for the small consumer with a 20% increase).

The government has made public its intention to modify the Spanish pool rules within a short period of time.

Wholesale

The wholesale Spanish generation market (also referred to as the "Spanish pool") operates according to the principle of supply and demand and is organised in a sequence of markets in which energy generation and demand are exchanged.

At day D-1 (the day before that energy is generated and consumed), the agents exchange energy for each hour of day D on the daily market organised by the electricity market operator (OMIE) (see website, www.omie.es/inicio). In addition, within 24 hours before the time of generation and consumption, agents can adjust their positions by buying and selling contracts in the intraday markets, also managed by the OMIE.

In the very short term (from a few hours to a few minutes before the generation and consumption) generators may offer (or use) a range of services to the system in several markets organised by the system operator (REE).

 

Tax issues

23. What are the main tax issues arising on electricity generation, distribution and supply?

Companies engraining in electricity activities are subject to normal corporate income taxes.

Act 15/2012 on new tax measures for energy sustainability, which entered into force on 1 January 2013, implements several measures aimed at slowing-down and reducing the tariff deficit (see Question 8). Many of these measures relate to tax, including the establishment of three new taxes (among them, a new 7% tax on electricity generation) and a levy.

Since 1998, a tax on the electricity consumption is charged by the electricity supply companies to the consumers. In general, the tax applies at a 4.864%. However, the application of the tax rate is subject to a series of legal conditions.

 

Reform

24. What reform proposals are there for the regulation of the electricity sector?

The new Electricity Sector Act (approved in December 2013) is still subject to certain developments.

The main new regulations pending approval in the months ahead include the following new Royal Decrees:

  • Regulating the administrative, technical and economic requirements for self-consumption of generated electricity.

  • On the activity of electricity trading.

  • Establishing the payment by capacity mechanisms and hibernation of generation installations.

  • On the activity of electricity production in the electrical systems of non-mainland territories.

  • On the regime for settlement of the remuneration of electricity activities.

Finally, a new Ministerial Order is to be introduced, developing Royal Decree 413/2014 on a new remuneration for existing renewable energy, cogeneration and waste installations.

 

The regulatory authorities

Ministry of Industry, Energy and Tourism (Ministerio de Industria, Energía y Turismo)

Address. P. de la Castellana 160, 28046 Madrid, Spain
T +34 91 91 349 40 00
W www.minetur.gob.es/es-es/Paginas/index.aspx

Main responsibilities. The Ministry is responsible for formulating and implementing Spanish energy policy.

National Markets and Competition Commission (Comisión Nacional de los Mercados y la Competencia) (CNMC)

Address. Alcalá 47, 28014 Madrid, Spain
T +34 91 432 96 00
F +34 91 577 62 18
W www.cnmc.es

Main responsibilities. This is the regulatory body under the Ministry of Economy and Competitiveness for the energy sector. It monitors the efficiency, responsibility, operational objectivity and transparency of energy systems, to the benefit of all those individuals who work in these systems as well as consumers. It also has a role in enforcing Spanish competition rules within the energy sector.



Online resources

W www.minetur.gob.es/energia/es-ES/Paginas/index.aspx

Description. This is the official website for the electricity sector in Spain, provided by the Ministry of Industry, Energy and Tourism.

W www.cnmc.es/es-es/inicio.aspx

Description. This is the official website for information about the electricity sector, hosted by the National Markets and Competition Commission.



Contributor details

Ignacio Borrego, Partner

Watson, Farley & Williams

T +34 91 515 6321
F +34 91 563 16 30
E iborrego@wfw.com
W www.wfw.com

Professional qualifications. Spain, Law degree (Licenciado en Derecho)

Areas of practice

  • Public law (in particular, in the fields of energy, environment and public procurement).
  • Specialist in public law, with focus in energy, environment, public infrastructure and public procurement sectors.
  • Advises domestic and foreign clients in numerous administrative procedures, public tender and contentious-administrative proceedings before the Spanish courts.
  • Broad experience in renewable and gas projects and issues related to Spanish energy regulations.
  • Professor teaching postgraduate courses and an MA in energy law.

Languages. Spanish, English

Ana Calvo, Senior Associate

Watson, Farley & Williams

T +34 91 515 6311
F +34 91 563 16 30
E acalvoabril@wfw.com
W www.wfw.com

Professional qualifications. Spain, Law degree (Licenciado en Derecho)

Areas of practice

  • Regulated sectors, energy, infrastructure.
  • Focus on the regulated sectors (energy, pharma, health, ICT, transports, gaming and food), public procurement, administrative organisation and public property rights, public services, expropriations and sports law.

Languages. Spanish, English.


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