Faced with the rise in the price of electricity in the Spanish market, the government has approved a series of measures aimed at mitigating the effects of prices on consumers and reducing their monthly bills by up to 22% over the remainder of the year.

The September 2021 electricity reform comes into force from the 16th of September and is set out in Royal Decree-Law 17/2021, of 14 September, on urgent measures to mitigate the impact of rising natural gas prices in the retail gas and electricity markets.

The eight key points are the following:

1. A mechanism is created for reducing the excess remuneration in the electricity market caused by the high price of natural gas on international markets, effective until 31 March 2022, which will reduce the income of production facilities using technologies that do not emit greenhouse gases, including photovoltaic and wind power, by an amount proportional to the higher income obtained by these facilities as a result of the inclusion in electricity prices on the wholesale market of the value of the price of natural gas by marginal CO2 Emissions technologies.
   The mechanism will be applied to the remuneration received for the total amount of energy produced by the affected facilities in the settlement period in question, measured at the affected plants, and regardless of the contracting method used. In other words, the energy sold outside the daily market, through bilateral contracts, will also be reduced, since, in accordance with the aforementioned regulation, all of it internalises the opportunity cost of selling it on the daily market, where the cost of natural gas is internalised. However, in the face of criticism from the renewable energy sector about the impact that this rule will have on PPAs, the government has committed to publish an interpretative note that should be favorable to renewable energy installations that do not internalize the cost of natural gas.
   Generation facilities that have a specific remuneration regime (renewables, cogeneration and waste), non-mainland facilities, and small facilities ( < 10 MW) are excluded.

2. The Special Electricity Tax (IEE) is reduced from 5.1% to 0.5%, the minimum allowed by Council Directive 2003/96/EC of 27 October 2003.

3. The suspension of the Tax on the Sale of Electricity Production (IVPEE), which levies a 7% tax on generation, is extended until 31 December 2021.

4. Auctions of power purchase contracts, both renewable and non-renewable, shall be convened to provide liquidity and competition in the forward markets for industry and independent traders. Dominant business groups will bid for electricity in proportion to their share, and independent marketers, as well as large consumers, will be able to purchase it and sign forward contracts with them with a settlement period of one year or more with the adoption of this new pricing model. The Ministry will approve a timetable for these auctions and the first one will take place before the end of the year; Iberdrola, Endesa, Naturgy and EDP will bid 15,830 GWh, equivalent to 6.3% of the national electricity demand in 2020.

5. The contribution of the proceeds from CO2 auctions to cover electricity system costs is increased by 900 million euros to 2,000 million euros during the financial year; or temporarily reduce the extraordinary income caused by the high price of gas in some power plants.

6. The impact of the cost of raw materials on the calculation of the three bands of the last resort tariff for natural gas (TUR) is limited for six months, so that the average increase in the next quarterly review, on 1 October, will be 4.4%, instead of 28%. The amounts due will be passed on in the following reviews, with a dampening mechanism similar to the existing one for butane cylinders.

7. The protection of the vulnerable, families and SMEs is increased, establishing a minimum vital supply that prohibits the cut-off of the service for non-payment to the beneficiaries of the Bono Social Eléctrico (monthly allowance for the most vulnerable social groups) six additional months to the existing four, making a total of 10 months during which time a minimum supply of 3.5 kW will be guaranteed.

8. A water regulation is amended which will set new variables and minimum stored reserves and new criteria for the rational use of water resources. It also establishes water availability targets: above 15% in the medium term and between 35 and 40% in the long term, to encourage the development of sustainable economic activities.

Ignacio Puig
Energy Area