Impending reduction of Spanish feed-in tariffs for renewable energy

14 March 2014


Under the former Special Regime, renewable energy and cogeneration facilities were entitled to transfer all their net power to the grid in exchange for: (i) the feed-in tariff; or (ii) the market price plus a regulated premium. These feed-in tariffs promised by the Spanish Government were intended to encourage and support investment in renewable energy installations.

On 12 July 2013, the Spanish Council of Ministers approved a package of urgent legislative measures aimed at removing the Spanish electricity tariff deficit. On 13 July 2013, the Spanish Government approved Royal Decree-Law 9/2013 which abolished the Special Regime and replaced it with a new remuneration system.

Instead of receiving feed-in tariffs calculated by reference to the amount of energy produced, such installations will receive a "specific remuneration" calculated by reference to the installed capacity and exploitation costs of a "standard facility", not on an individual basis. The new remuneration will be further developed by new regulations, which are expected to be passed in the coming weeks. The key elements of the new draft remuneration scheme are set out below.

Client support

In addition to local remedies such as judicial reviews challenging specific regulations and administrative decisions, adversely affected foreign investors may bring arbitration claims directly against Spain under investment treaties, such as the Energy Charter Treaty.

Such treaties provide for financial compensation for qualifying investments for breaches of substantive grounds of protection, including: expropriation (art. 13 ECT); and breach of a state's obligation to provide fair and equitable treatment (art. 10 ECT). Such claims are brought under international law and are determined by independent arbitral Tribunals.

Apart from a number of local Spanish court actions challenging the relevant local regulations, Bird & Bird has significant experience representing energy investors in investment treaty arbitration claims against Spain, including:

  • one of the first arbitration claims under the Energy Charter Treaty as a consequence of the adoption of new regulations (Royal Decree 1565/2010 and Royal Decree-Law 14/2010) retroactively affecting existing PV plants; and
  • an Energy Charter Treaty claim as a consequence of the adoption of Law 15/2012 and Royal Decree-Law 2/2014.

Main features of the new remuneration scheme

  • The feed-in tariff system has been abolished. 
  • Instead, relevant installations will receive the electricity market price plus "specific remuneration", until they are capable of competing in the market. Under the new "specific remuneration" scheme, renewable energy installations will be paid on the basis of their installed capacity and their exploitation costs (i.e. O&M) and not by reference to their electricity production.
  • The "specific remuneration" includes: (i) an element related to each unit of installed capacity enough to cover the investment costs of a "standard facility" not recovered from the sale of electricity in the market; and (ii) an operation element to cover the difference between the exploitation costs and the incomes for the participation in the electricity market of the "standard facility".
  • The draft remuneration scheme is intended to enable a "reasonable return" which is calculated by reference to a "standard facility". That is to say, the proposed remuneration is to be calculated as a market price differential. Such "reasonable return" will be calculated by reference to the average yield of 10-year Spanish Government Bonds on the secondary market plus a spread.
  • The new remuneration scheme will be backdated to 14 July 2013. Thus appropriate adjustments might be made on feed-in tariffs already received, giving rise to backdated collection rights or payment obligations for adversely affected companies.