Spain proposes carbon clawback law on zero-emission generators

Barcelona — Spain's government has proposed a law to claw back profits made by zero-carbon generators and so reduce the cost of CO2 prices on consumer bills, it announced June 1.

The bill would target zero-carbon generation in operation before 2005, namely older hydro and wind plants and all nuclear plants, which the government said had benefitted from power prices inflated by carbon costs.

The procedure would be based on "an objective methodology" to calculate the equivalent income form CO2 not emitted, it said.

Some 90% of the income would be used to finance renewable energy subsidies, and 10% to fight energy poverty. The measure was compatible with EU and domestic law, it said.

The move would save domestic consumers 5% on their bills and industrial groups 1.5% on their energy costs, the government said.

The impact on Spanish utilities was estimated between Eur800 million and Eur1 billion ($1.22 billion), RBC Europe analyst Fernando Garcia said in a research note May 30.

A report from SGCIB analyst Jorge Alonso Suils estimated the cost at between Eur8/MWh and Eur10/MWh based on forecasts for 2022 hydro output of 30 TWh, nuclear of 56 TWh and wind farms in operation before 2005 of 15 TWh.

The approval process may be complicated by a political divide, Garcia said, noting some of Spain's political parties could line up against the change. The utilities could also fight the law in court, he said.

Suils noted that on average it took five months for a bill to be approved and enforced and would need the support of non-ruling coalition parties.

If the law did come into force, the influence of CO2 prices could decline in the medium term, Garcia said.

"We calculate the current impact of CO2 in the marginal cost of a CCGT is over Eur15/MWh, but there are periods in the year with small effect of CO2 prices given higher weight of renewable output," he said.

Spanish front end prices have been driven higher by rising CO2 and gas prices this year.

The day-ahead contract on the OMIE exchange was Eur84.85/MWh for June 2, and hit Eur94.99/MWh May 8.

This compared to a pandemic-related trough of Eur17.65/MWh on average in April 2020.

May's consumer bills turned out 44% more expensive than those a year ago at a monthly average Eur75.92/MWh, according to Spanish daily Cinco Dias.

Responding to first reports of the political intervention May 29, Eurelectric Secretary General Kristian Ruby said such a measure "would introduce regulatory instability and distort proper market incentives to invest not only in future renewables, but also to operate existing non-emitting assets."