Energy Spain Newsflash April 2023

NATIONAL MEASURES IN THE ELECTRIC SECTOR

Extension of the production costs adjustment mechanism for the reduction of the price of electricity in the wholesale market

Royal Decree-Law 3/2023, of 28 March, on the extension of the production costs adjustment mechanism for the reduction of the price of electricity in the wholesale market provided for in Royal Decree-Law 10/2022, has extended the implementation of this mechanism until 31 December 2023. Additionally, some of its calculation parameters have been updated.

Among other amendments, the reference price applicable for the mechanism shall gradually increase between €55/MWh in March 2023 up to a maximum of €65/MWh in December 2023. Likewise, a new period of 15 business days has also been set out for the communication of contracting instruments that would exempt the relevant participants from adjustment mechanism within the extension period. To this effect, only instruments executed before 7 March 2023 will be valid, except in the case of agreements between producers and traders belonging to a vertically integrated group, where 26 April 2022 will be kept as a reference.

You can access the content of the Royal Decree-law here.

Preliminary registration in the economic regime of renewable energies' registry of those applications related to the auctions held on 25 October and 22 November 2022

The Resolutions of 9 and 16 March 2023, of the General Directorate for Energy Policy and Mines (Dirección General de Política Energética y Minas or DGPEM), provide for the registration of those applications related to the auctions held on 25 October and 22 November 2022 in the electronic registry of the Economic Regime of Renewable Energies (Régimen Económico de Energías Renovables or REER) under a preliminary status. Annex I of each Resolution provides the successful bidders whose pre-assignment registration is approved, while Annex II establishes the main application parameters to said applications.

You can access the content of the Resolutions here (9 March and 16 March).

Update of the operating rules of the daily and intraday electricity market for their adaptation to the economic regime of renewable energies

On 3 March 2023, the Spanish National Markets and Competition Commission (Comisión Nacional de los Mercados y la Competencia or CNMC) published its Resolution of 23 February 2023, approving the operating rules of the daily and intraday electricity market for its adaptation to the REER.

The main modifications provided for in this resolution aim at, among others, (i) the introduction of the possibility of carrying out the settlement associated with the REER within the market, (ii) the introduction of two new sorts of guarantees that cover possible breaches of payment obligations derived from the REER settlement mechanism, (iii) the modification of the criteria for the assignment of receivables in REER units, which will not be considered final until complete settlement by the market operator occurs after the necessary information has been received from the system operator, and finally (iv) the operating model and the composition of the market agents' committee are modified to adapt it to the common rules of the internal electricity market.

Likewise, two additional modifications are introduced to the operating rules proposed by the market operator consisting in the modification of the rules related to the offers of the continuous intraday market and the modification of the rules governing the distribution of interests to allow the distribution between market agents of the interest accrued in the accounts designated by the market operator for charges and payments, as well as that designated for guarantees.

You can access the content of the Resolution here.

NATIONAL MEASURES ON THE HYDROCARBONS SECTOR

Approval of Regulation (EU) 2023/706 of the Council on the extension of the natural gas demand reduction period

On 31 March 2023, Regulation (EU) 2023/706 was published, extending and modifying the gas demand reduction measures introduced by Regulation (EU) 2022/1369. These measures will continue to apply until 31 March 2024 and the reference period for calculating the consumption for the purposes of the reduction shall be the period comprised between 1 April 2017 and 31 March 2022.

Additionally, certain modifications were introduced to the natural gas demand reduction regime in case of mandatory reduction scenarios declared by the European Union, such as the possibility of adjusting the reference gas consumption in order to exclude the volume of natural gas consumed directly as a result of the substitution of coal by natural gas.

You can access the content of the Regulation(EU) 2023/706 here.

NATIONAL MEASURES ON BOTH SECTORS

Contributions to the National Energy Efficiency Fund for the year 2023

On 30 March 2023, the Ministry for the Ecological Transition and Demographic Challenge (Ministerio para la Transición Ecológica y el Reto Demográfico or MITERD) issued Order TED/296/2023, of 27 March, where the obligations to contribute to the National Energy Efficiency Fund for the year 2023 are set out.

Order TED/296/2023 allows obligated market agents to voluntarily meet part of these obligations through the settlement of Energy Saving Certificates (Certificados de Ahorro Energético). Notwithstanding the foregoing, at least 60% of the obligations must be met by means of financial contributions.

Annex 1 of the resolution contains the methodology for the allocation of savings obligations for the year 2023, and Annex II establishes the specific contributions to the National Energy Efficiency Fund for each party and their economic equivalence.

You can access the content of the Order here.

THE TAX CORNER

The Supreme Court has addressed a preliminary ruling (cuestión prejudicial) to the Court of Justice of the European Union in relation to the potential incompatibility of the Special Tax on Hydrocarbons with the European Union legislation.

The Hydrocarbons Special Tax (Impuesto Especial de Hidrocarburos or IEH), in force from between 2013 and 2018, has been really controversial due to the entitlement of the Autonomous Communities to set out a supplementary rate in addition to the State tax rate. This supplementary regional tax, which has been contested both by the taxpayers (generally petrol stations) and by the purchasers of the fuel, will be subject assessed by the Court of Justice of the European Union in order to determine whether it is contrary to European Union law.

You can access the preliminary ruling here.

Concept of electricity producer for the purposes of the Special Tax on electricity

On 21 February 2023, the Central Economic-Administrative Court (Tribunal Económico Adminsitrativo Central or TEAC) clarified the concept of electricity producer for the purposes of the Special Tax on Electricity (Impuesto Especial sobre la Electricidad or IEE).

Before this clarification, it was unclear whether any person generating electricity for self-consumption (nevertheless if production for third parties was its main activity or not), should be considered a taxpayer for the purposes of the IEE or whether, to the contrary, they are not included under the scope of this tax. To this effect, TEAC has clarified that this concept should be construed "in a usual and comprehensive sense of any person who produces electricity" and, therefore, electricity production for self-consumption falls within the scope of the IEE.

You can access the Resolution here.

Taxable base of the Tax on the Value of Electricity Production for producers of electricity from renewable energy sources, high-efficiency cogeneration and waste

On 8 February 2023, the Supreme Court issued an order (auto) by which it was summoned to resolve a matter relating to one of the most conflictive points on the Tax on the Value of the Production of Electrical Energy (Impuesto sobre el valor de la Producción de Energía eléctrica or IVPEE), which is the determination of its taxable base. Accordingly, the Supreme Court shall resolve:

• whether the taxable base of the IVPEE corresponds to the total amount received for the production and sale of energy valued at a market price or;
• whether the taxable base of the IVPEE corresponds to the total amount received for the production and sale of the energy valued at the market price minus certain "exclusions", which correspond to amounts not directly related to the production and incorporation into the electricity grid.

The question arises as to whether producers of electricity from renewable energy sources, high-efficiency cogeneration and waste have to include in the tax base (i) the specific premium or remuneration received, commonly known as investment remuneration and (ii) the operation remuneration.

You can access the order here.