On 5 November 2020, Royal Decree 960/2020 (RD 960/2020), of 3 November, came into force in Spain, regulating the new economic regime for renewable energy (REER) for electricity production.
The purpose of RD 960/2020 is to regulate the so-called “economic regime for renewable energies”, achieved through a system of auction.
Scope of application of the new economic regime
RD 960/2020 provides for a regime that will be available to generation facilities from renewable non-fossil energy sources. It includes installations made up of more than one technology or which have storage systems.
It is an essential requirement that the facilities are the result of a new investment made after the auction:
- Either by investing in a new facility as a whole
- Either by investing in an extension or modification of an existing facility.
An auction mechanism will grant the economic regime. Although RD 960/2020 contains extensive regulations in this respect, the corresponding ministerial order will complement it.
The product to be auctioned will be the installed capacity, the electrical energy, or a combination of both, and the bid variable will be the price per unit of electrical energy expressed in euros/MWh.
Participation in the auctions requires providing financial guarantees.
The ministerial order regulating the auction mechanism may provide for the participation of renewable energy communities and the exemption of small installations (less than 5MW) and demonstration projects from participating in this procedure.
The resolution calling the auction shall set a maximum price (reserve price) and may set a minimum price (risk price). Bids above the reserve price or below the risk price will be rejected.
The same company or business group may not be awarded more than 50% of the total volume of the product auctioned, and the ministerial order regulating the auction may reduce this percentage.
Because of the auction, each participant will obtain an allocation of power or energy. The award price will correspond to their economic offer.
The successful bidders in the auction will be for maximum and minimum energy. They must reach the minimum auction energy within a maximum period of between 10 and 15 years (exceptionally extendable to 20 years), with penalties if the minimum figure is not reached within the established period.
The auction price received by the successful bidder may increase by the difference between the market price and the auction price multiplied by a percentage up to 0.5 depending on certain variables.
Finally, another feature to take into account is that the market operator (OMIE) will settle the positive or negative difference between the market price and the auction-clearing price.
RD 960/2020 creates an electronic register of the economic regime for renewable energies, in which the successful bidders of the auction will need to register according to their status:
- Pre-allocation status
- Operating status
For the adequate application of the economic regime, it will be essential that the facilities appear in this register under an operating status within the time limit established in the call of each auction.
The new economic regime introduced by Royal Decree 960/2020 seeks to provide legal coverage, to increase security to new renewable energy investors, and facilitate their access to the financing of renewable energy projects.
In any case, and particularly for investors interested in acquiring projects implemented in Spain, under this new regime, it will be of particular importance carrying out legal and technical audits or Due Diligence. It will allow them to ensure the viability and profitability of their investments and to minimise their costs and risks.
Rebeca Pérez Yáñez
This article is not considered legal advice