Renewable energy in Spain

Since 1997, the right of access and connection in Spain has been one of the key elements for the liberalisation of the electricity sector. However, in recent years, rules have been introduced that imply certain limitations for the developers of renewable energy facilities. 

On the one hand, RDL 23/2020 introduced a series of mandatory administrative milestones to maintain the validity of granted access and connection permits, all of which are linked to the progress of the processing of generation facilities. Failure to meet these milestones within their deadlines will result in the automatic expiry of the permits and, in some cases, could lead to the immediate execution of the financial guarantees deposited.  

Given the impossibility of processing the projects within the deadlines initially set, in 2021 an extension of all the deadlines by an additional 9 months was introduced, and in 2023, 6 months to accredit the obtaining of the Administrative Authorisation for Construction. In both cases, without affecting the 5-year deadline for obtaining the Administrative Authorisation for Operation. 

RDL 5/2023 justifies this new extension due to the conditional nature of many of the environmental reports, which require the implementation of substantial modifications to the projects, as well as difficulties in meeting the demand for supplies due to the accumulation of projects. With these modifications, the current deadlines are as follows: 

On the other hand, a new mechanism for the exceptional allocation of available capacity through tenders was introduced. In other words, to access capacity, it is necessary to participate in a call for tenders and be awarded the capacity. 

Invitations to tender may be held for specific capacity nodes of the transmission grid, either as a result of grid planning, or as a result of the expiry of permits due to non-compliance with the milestones of RDL 23/2020, or due to changes in the criteria for calculating capacity or grid improvement actions. In any case, in order to set up the call for tenders in these nodes, the potential capacity must be equal to or greater than 100 MW. 

Certain criteria, associated to timelines, technology, R&D, socio-economic factors and environmental factors will be taken into account when awarding capacity in the tenders. The regulation announcing the call for tenders for access capacity for certain nodes of the transmission grid is currently in the public information process. The criteria and their weighting for the purposes of ranking applications and resolving the tender in each of the nodes regulated in this Order are set out in the Annex. Specifically, a favourable score is foreseen for projects that bring the facilities into operation in the shortest possible time. 

As a result of the above, there was a large-scale launch of project authorisation procedures in these nodes with the supposed aim of blocking sites, which led to the decree at the end of 2022 to suspend the processing of such projects that, intending to evacuate in tendered nodes, do not yet have access and connection permits. 

Therefore, for the main grid capacities, tenders are necessary, although none have been called since 2020. There are currently many projects being processed and the Government has decided to limit large-scale projects. These limitations could be lifted in the coming months as there is an increasing need to cater for projects aiming at hybridisation, storage, and energy communities. The regulation on the right of access and connection for demand is also being processed in order to integrate new developments of storage facilities that are crucial for the energy transition. 

The Spanish electricity system has significantly increased its electricity production facilities with renewable technology, which has affected the market price. In addition, a very significant increase is expected under the National Integrated Energy and Climate Plan for the period 2023 - 2030 * in the coming years. 

Energy prices, which have been influenced by this new power, could potentially be further impacted in the near future due to the projected significant hybridizations with storage facilities, or by the operation of standalone storage facilities that will purchase energy during cheaper hours. 

In 2020, the bases were set out for an additional remuneration framework for electricity generation from renewable sources, which differs from the Specific Remuneration Regime already established in RD 413/2014 and granted for the last time in 2017, consisting of an auction system and the long-term recognition of a fixed price for the energy produced.  

Four auctions were held between 2021 and 2022, for PV and onshore wind technologies, and prices ranged between 25 and 40 €/MWh. However, the auction also held in 2022 for solar thermal technology was left with no bidders due to the starting price. Prices have therefore been affected by the market situation. 

In addition to these auctions and the increase in renewable production at certain times, the increase in self-consumption facilities is also producing a reduction in demand that affects prices, and the government approved mechanisms to reduce the price of the wholesale market and its marginalist nature. 

Thus, it was considered that technologies that do not use gas for electricity production were obtaining an extraordinary income and in 2021 it was decided to reintroduce a mechanism for the reduction of income through the reimbursement of the amounts received ‘in excess’, although its validity was limited to June 2022, it has been extended and will remain in force until 31 December 2023. 

The amount to be reimbursed is equivalent to the impact on the market price of the cost of gas internalised by the thermal plants in their bids to the market and excludes those installations with fixed price PPAs signed before 31 March 2022 until their renewal and fixed price PPAs with a term of more than one year, signed after 31 March 2022 and with a hedging price below 67 €/MWh. 

Therefore, renewable power plants have been forced to sign PPAs to avoid the imposed reduction (which is still facing pending claims by developers). 

Meanwhile, in the context of high wholesale market prices, facilities with regulated remuneration prior to 2017 have also seen their cost recovery and reasonable profitability structure modified to take into account the higher costs of certain facilities or their reduction due to higher wholesale market prices. 

These measures differ from the production cost adjustment mechanism for the reduction of the electricity price in the wholesale market introduced in 2022, known as the 'Iberian exception', with the aim of reducing the impact of the escalation of the price of natural gas on the price of the electricity market in Spain and Portugal. This mechanism provides partial compensation for the costs of thermal facilities, based on the price of natural gas (taking MIBGAS as a reference), so the compensation is internalised in the bids that these generation units make on the daily electricity market. 

All of the above, together with the pending reform of the electricity market by European regulation, has affected the price structure of PPA contracts and their clauses to provide for these regulatory mechanisms and temporary circumstances.

The regulatory framework for offshore wind energy production facilities in Spain is being adapted to develop floating facilities. Offshore wind energy projects with fixed technology have been set up on an experimental basis in localised areas due to the characteristics of the Spanish continental shelf.  

The regulation governing the authorisation of these facilities (RD 1028/2007) is based on a competitive procedure to obtain an ‘area reserve’, as a prerequisite for the application for an administrative authorisation for the facility. The area reserve grants the exclusive right to carry out wind resource research operations. Once the necessary research studies have been carried out, the developer must submit an application for the authorisation of the installation to the competent authority. 

However, technological advances and cost reductions in floating wind farms have made it possible to extend the perimeter for the implementation of these facilities, which is leading to the regulatory adaptation necessary for their development. This new regulatory framework addresses three key elements in a coordinated and simultaneous manner: spatial planning, grid connection and business model. 

These premises are based on the ‘Roadmap for the development of offshore wind and marine energy’, published in 2021, which foresees that the development of the administrative framework must meet fair transition criteria in competition procedures and must adapt the mandatory regulatory deadlines for the administrative milestones of offshore wind energy projects and those which are hybrid with other technologies. The target for 2030 is to reach an installed offshore wind power capacity of 3 GW and 17 GW by 2050. This is the Government’s intention, which has also been included in the National Integrated Energy and Climate Plan for 2023 - 2030, the adaptation of which may increase these objectives. 

To complete the new regulatory framework, in 2021 the Government approved a moratorium on the admission of new applications for administrative authorisation and territorial maritime area reservation, until the development of the new framework that will adapt the current procedure to the maritime spatial planning resulting from the processing of the maritime spatial plans (POEMs) of the five existing Spanish marine demarcation areas. The regulation governing the POEMs was approved and published on 4 March 2023 (RD 150/2023). 

Due to the cost and state of the technology, in order to compete in the market, support remuneration mechanisms will be necessary, therefore the framework for electricity generation from renewable energy sources, approved in 2020, should be applied through an auction system and based on the long-term recognition of a fixed price for the energy produced. As the regulator has acknowledged, it will be necessary to set up a specific remuneration framework for these facilities, differentiating offshore wind power between fixed and floating, and calling an auction in the coming months.  

Therefore, it will be necessary to wait for the completion of the new regulatory framework for offshore electricity generation facilities to start processing new applications for authorisations for offshore wind farms and auctions for this new technology.