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Renewable Energy in Spain: Details on the Government's New FIT Regulation

President Obama recently referred to Germany, Japan and Spain as three countries that have made a "real investment in renewable energy." Spain's effort has meant that the Spanish market has grown tremendously over the last eight years. The development of a favorable feed-in tariff, under Royal Decree 436/2004 and Royal Decree 661/2007, created a perfect environment to develop renewable energy "special regime" projects.

The Spanish government authorized a feed-in tariff (FIT) under which renewable energy producers could sell the energy they produce to the system directly through distributors; they could choose between selling electricity at the market price with a premium or at a given — very attractive regulated tariff. Consequently, initiatives to develop projects arose across country, most of those using photovoltaic (PV) and wind over others such as tidal and biomass.

In September 2008, Royal Decree 1578/2008 introduced a new pre-registration system for PV projects. Once the 400-MW cap established under Royal Decree 661/2007 was reached, the Spanish government reduced the regulated tariff for PV projects, established a new cap and, more importantly, established a registry to pre-assign PV projects to get the benefit of the new remuneration. After delays, this registry has recently started to operate for PV projects. The government has now created a similar registry where developers of “special regime” technologies other than PV must register their projects in order to get the benefit of the economic regime established by Royal Decree 661/2007.

Indeed, on May 7, 2008, the Spanish government published Royal Decree-Law 6/2009 (RDL), and created a similar registry for all other renewable-energy technologies. Under the RDL, for projects under the special regime (renewable energy) to benefit from the regulated tariff, they must be registered at the Registry for the Preliminary Assignment of Remuneration (the Registry).

Requirements To Register a Project

To register a project, developers must meet the following requirements:

1.    Have a concession from the distributing or transporting electric company for grid access and a connection point for all the power of the installation.

2.    Have administrative authorization for the installation. Installations with less than 100-kW of power do not need this.

3.    Have any corresponding work licenses.

4.    Have made any deposits necessary that are required to apply for access to the transport and distribution grid.

5.    Have sufficient economic resources or enough financing to cover at least 50% of the installation, including its evacuating and connecting line to the transporting or distribution grid.

6.    Have entered into purchase agreements with equipment manufacturers or suppliers to purchase equipment equal in value to at least 50% of the project. 

7.    Have a supply point for natural gas, assigned by the company distributing or transporting the gas, for installations that require gas as the main fuel.

8.    Have a favorable report on water-resource management, if it is necessary to operate the installation.

9.    Have made a deposit (guarantee) of €20 per kW with the Caja General de Depósitos, in favor of the Ministry of Industry, Tourism and Trade. For concentrating solar power plants (CSP), this amount is €100 per kW. 

Note: Number 9 is a new guarantee. On May 20, 2009, the Ministry published a model guarantee. Although its wording is not very clear, it seems the Ministry would keep the payment under it if:

  • the installation is voluntarily abandoned by the developer; or
  • the authorities’ requests for more information are not answered within three months.

The RDL has established two regimes for registration in the Registry: the transitory regime and the ordinary regime.

The Transitory Regime

The transitory regime is based on a term of 30+30 days. Developers with projects that satisfied all requirements — except the new guarantee before May 7, 2009 could apply to register the project under the transitory regime until June 5, 2009. Once the application for a given project is lodged and it meets certain requirements, the Ministry should require the applicant to remedy any defect in the form or to provide additional supporting documentation. Developers would then have an additional 30 days to file the new guarantee.

Unfortunately, it is not clear whether this second term of 30 days starts to run on June 5, 2009, or on the date the application was filed, if this was before June 5, 2009. The Registry will only register projects that met the requirements before May 7, 2009.

If, after the 30+30 days, the target quota for a given technology is not reached by registered projects, the registered projects will be able to take the regulated tariff. The remaining target quota will be allocated to whoever registers first under the ordinary regime.

If, after the 30+30 days, the target quota is reached, all the projects registered should benefit from the regulated tariff (even those in excess of the target quota initially established).

Under the RDL, although all projects registered under the transitory regime exceeding the current target quota will benefit from the regulated tariff, the Council of Ministers “may impose annual restrictions on executing and commissioning the registered plants and their priority, to avoid risks for the technical and economic sustainability of the electric-power system.”

This is a major concern for developers and, more significantly, for investors and potential lenders. Some believe that, after completion of the transitory regime, the Ministry will exclude some technologies from this potential limitation, but this is not certain.

The Ordinary Regime

If the projects did not meet the requirements by May 7, 2009, developers must apply for registration under the ordinary regime. Projects registered under the ordinary regime will not benefit from the current regulated tariff (unless projects registered under the transitory regime does not fill the target quota), but they will benefit from any new regulated tariff the government approves.

Unlike the transitory regime (where the 30+30 term applies), it is important to file the application promptly to ensure a better chance of getting a good position on the Registry. To determine the time priority for each project, the Registry will consider the latest date appearing on the documents showing compliance with the registration requirements.

The installations registered at the Registry, regardless of whether they are registered via the transitory or ordinary regime, should be registered on the administrative Register of Generation Plants in the Special Regime and begin selling energy within 36 months of the date registration is confirmed. Otherwise, the economic right linked to their inclusion in the Registry will be lost.

Going Forward

Developers and investors are going to be expectant in the next three months. On the one side, developers may worry about how the Ministry will interpret the requirements established by RDL. On the other side, however, they may end up being very pleased because, if they get their projects registered and the government clarifies how it is going to interpret the potential establishment of “annual restrictions on executing and commissioning the registered plants and their priority,” their projects should reasonably become more valuable and that, in turn, should facilitate negotiations for (re)financing and attracting equity investors.

Pablo Cubel is a Partner with Cuatrecasas, Gonçalves Pereira who specializes on investment and joint-venture transactions, company sales and company restructuring and corporate disputes. He has extensive experience in sectors such as renewable energies and wastes.

He has a Doctor of Laws with from the Universidad de Valencia de Estudios Generales (UVEG), is a member of the International Association for Young Lawyers (Association Internationale des Jeunes Avocats-AIJA) and has lectured on international law at the Universidad Carlos III of Madrid and the Universidad de Valencia, and on corporate law in the Master in Legal Practice at the Madrid Bar Association.

He has published a book on exports of hazardous waste and has published in journals such as the International Journal of Marine and Coastal Law and the Yearbook of International Environmental Law.

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