The enforcement of financial guarantees in photovoltaic projects: The Royal Decree-law 23/2020

The energy sector in Spain has undergone significant changes over the past year, especially after the entry into force of the new Royal Decree-law 23/2020 (RDL 23/2020), which has marked a turning point in the regulatory framework of the Spanish energy system. Royal Decree-law 23/2020 introduces changes that directly affect the financial guarantees (surety bonds) to be deposited by those interested in accessing electrical power stations.

Spanish energy legislation establishes the need to provide a financial guarantee or surety bond to process the application for access to electricity production facilities (grid access).

Article 23 of Royal Decree 1183/2020 of 29 December establishes that the amount of the guarantees for grid access permits will amount to €40/KW.

Regulation of financial guarantees in photovoltaic projects

Spanish energy field regulation establishes the need to provide a financial guarantee to apply for access to electricity production facilities.
Article 23 of Royal Decree 1183/2020 of 29 December stipulates the deposit amount for grid access permits at €40/KW.

The receipt of the deposit of financial guarantees is essential to request grid access permits and connection procedures. The Spanish entities to deposit these financial guarantees will vary according to the power capacity of each project:

• For projects with a capacity above 50 MW, the competent body will be the Central State
  Administration
• For projects with a capacity under 50 MW, the competent body will be the Regional Administration.

Enforcement of financial guarantees in the new RDL 23/2020

On 7 June 2020, RDL 23/2020 came into force, introducing significant changes in the energy regulatory framework in Spain. Especially in the enforcement of financial guarantees deposited for photovoltaic projects.

One of the principal aims of RDL 23/2020 is to reduce the volume of grid access and connection requests, thus avoiding speculation on connection permissions within the industry.

RDL 23/2020 establishes a series of administrative requirements within deadlines determined by the acquisition date of the access and connection permits:

• Submission and acceptance of the application for prior administrative authorization
• Obtaining a favourable environmental impact statement
• Obtaining the prior administrative authorization
• Obtaining an administrative authorization for construction
• Obtaining the final administrative operating authorization.

The dates of each milestone are cumulative since the granting of the connection permits for each installation.

For network and connection permits obtained before the entry into force of RLD 23/2020, there are specific deadlines to the milestones and the possibility to withdraw the connection permit without penalty in case of non-compliance.

Failure of accreditation to the competent authority to complete these milestones within the set time and deadline will entail the automatic expiration of access permits and, where appropriate, the immediate execution of the financial guarantees.

Bodies in charge of the enforcement of financial guarantees

Projects below 50 MW will fail under the direct competence of regional bodies rather than national authorities. It implies that both regional and national administrations will be competent to interpret the validity of the execution of the financial guarantees deposited for non-compliance with the above-described milestones within the granted timeframe.

With the previous legislation, the case-law on the enforcement of financial guarantees interpreted the possibility of enforcing them restrictively. Only when non-compliance by the project developers was obvious, was it considered appropriate for its enforcement.

However, given that RDL 23/2020 has only been in force for a short time, it will be necessary to wait for the first administrative and judicial precedents to be set regarding the enforcement of financial guarantees. This issue raises additional uncertainty for investors.

Conclusion

RDL 23/2020 introduces a new scenario for the Spanish energy system. To establish a more effective and strict system and reduce the volume of requests for grid access and connection, the new requirements or administrative milestones increase the risk for energy projects in Spain.

It is therefore advisable that investors and developers ensure their projects’ viability before depositing the financial guarantees.

See infographic

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