Introduction
After months of uncertainty, on 24 November 2019, Royal Decree-law 17/2019 (RDL 17/2019) setting out the rate of "reasonable return" for the purposes of the specific remuneration regime for generation of renewable energy, cogeneration and waste management applicable to the second regulatory period (2020-2025) entered into force.
These amendments have been longing due to the imminent end of the first regulatory period (2014-2019) and are adopted in the context of the transition of the Spanish energy system toward to a climate neutral one that considers and weighs not only the technical and economic perks of the different energy initiatives but also social and environmental benefits.
RDL 17/2019 shall be validated by the Congress of Deputies, as soon as it resumes its ordinary activity, or, alternatively, by the Permanent Deputation of the Congress, within 30 days following its approval.
New rate of “reasonable return” for renewable energy facilities under the specific remuneration regime (auction assets)
RDL 17/2019 sets out the rate of "reasonable return" for the purposes of the specific remuneration regime for generation of renewable energy, cogeneration and waste management applicable to the second regulatory period at 7.09% (the rate applicable during the first regulatory period is 7.398%)
RDL 17/2019 follows the proposal made by the Spanish Markets and Competition Commission (CNMC) in its report dated 30 October 2018. In this sense, the reasonable return is no longer calculated by reference to the Spanish 10 year bond plus an spread (3% during the first regulatory period) but by reference to the weighted average cost of capital (WACC), which is the calculation method that most of the European regulators apply in most of the cases to determine the return rates applicable to regulated activities within the energy sector.
The WACC method intends to provide a reasonable return for investors by taking into account the market conditions under which renewable energy companies access to financing.
In addition, RDL 17/2019 also extends the deadline for the Government to review the relevant remuneration parameters to calculate the retribution of the renewable energy generation until 29 February 2020. In this regard, last 13 November 2019, the CNMV published a report making a proposal on this.
Extension of the former rate of reasonable return for installations under the previous tariff regime
As an extraordinary measure, renewable facilities under the previous tariff (i.e. those in operation before 12 July 2013) will kept the previous reasonable rate of return, 7.398%, for the next 12 years provided that the relevant facility: (i) has not started or starts any judicial or arbitral proceedings challenging the amendment of the remuneration regimes; (ii) withdraws any of such on-going proceedings is has initiated or (iii) waives its right to receive any compensation recognized in its favor under any such proceedings.
