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Spain to remove renewable subsidies from consumer bills

Highlights

Eur7.2 billion bill absorbed in 2019

Fund to be supported by oil, gas, power groups

Large consumer statute becomes law

Barcelona — Spain's government has proposed a new law that will gradually separate the funding of renewable energy from consumers' bills and move it to the balance sheets of suppliers and oil and gas companies, it announced Dec. 15

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The mechanism would involve the creation of the National Fund for the Sustainability of the Electric System (FNSSE for its Spanish initials) to support the cost of renewable subsidies, which totaled Eur7.2 billion in 2019, around 16% of household bills.

"The new mechanism will have a triple objective," the government said. "It would prevent increases in the cost of electricity, send clear signals of the electrification of the economy and generate clarity and equilibrium to the system which would encourage the necessary investment in the coming years."

The fund would be managed by the Institute for Diversification and Energy Saving (IDAE) and would over the course of five years substitute the fixed costs that are included in customer bills, it said.

In the years between 2013 and 2018, Spain managed to reduce a Eur30 deficit in its power system, which was largely caused by large payouts to renewable producers, by around Eur11 billion via a number of legislative cuts and levies.

However, the imbalance returned in 2019, Spain's market regulator Comision Nacional de los Mercados y la Competencia (CNMC) reported Dec. 15, with a deficit of Eur528 million created in the year mostly due to a Eur870 million shortfall in expected income from the 7% generation tax, which has been applied since 2013.

The impact of COVID-19 on the 2020 balance is yet to be calculated, with most of the costs likely to be incurred in the March and April 2021 calculations, although some estimates are currently around Eur1.5 billion, according to a Dec. 16 research note published by RBC.

If the current system is not altered, power consumers face a hike of 10%-15% on their bills, the government said.

Contributions to the FNSSE fund would come from sector players defined as "obligated subjects" or gas and power sellers, wholesale petroleum product operators, wholesale LPG companies and their associated consumers, among other regulated contributions such as from CO2 auctions and the generating tax, the government said.

Additional contributions would be added from European funds and the national budget.

A number of sectors would be exempted, such as power storage, diesel for farming, gas for power and cogeneration and kerosene for aircraft as well as certain large industrial power and gas consumers.

Large consumers

As part of a drive to reform and balance the power system, the government also confirmed Dec. 15 that it will pass into law its Large Industrial Consumer Mechanism, although it did not publish dates or precise figures.

The mechanism will give certain consumers special rights to ensure greater certainty over their energy costs and improve their competitivity while abiding by European norms.

To qualify as a large consumer, the company must have consumed more than 1 GWh for two of the previous three years and consume at least 50% of its energy during off-peak hours.

The mechanism should benefit 612 companies across 60 industries, the Industry Ministry said.

The qualifying consumers will obtain up to an 85% reduction in a number of their fixed costs, such as they subsidies for renewables, costs for high efficiency cogeneration and subsidies for offshore and island territories.

They will also have access to the so-called million Reserve Fund to Guarantee Large Electricity Consumers (FERGEI in Spanish) which can assign Eur200 million/year to large scale consumers who contract at least 10% of their annual power demand for the next five years via a power purchase agreement.