New Regulation on Feed-In Tariff for Photovoltaic Plants - International Law Office

International Law Office

Energy & Natural Resources - Spain

New Regulation on Feed-In Tariff for Photovoltaic Plants

December 01 2008

Introduction
New Approach

Royal Decree 1578/2008
Second Additional Provision
Summary


Introduction

Royal Decree 1578/2008 (published in the Official Gazette on September 27 2008) has introduced significant changes to the financial regime relating to power generation through solar photovoltaic technology which was previously governed by Royal Decree 661/2007.

Although the new decree applies only to those plants that did not obtain final registration in the Administrative Special Registry on or before September 29 2008, a second additional provision requiring the earlier commencement of the sale of electricity in order to retain the existing feed-in tariff has raised concerns due to its potential retroactive application.

This concern has been mitigated by a statement of amendment published in the Official Gazette on October 17 2008 which amends the additional provision.

New Approach

The new decree reflects the government’s desire to limit the growth of installed photovoltaic power capacity, which has far exceeded the goals of the Plan for the Promotion of Renewable Energies and the previous decree. Some commentators identified the remuneration for solar photovoltaic power generation under the previous decree as the main reason for this growth. Accordingly, the main changes introduced by the new decree relate to remuneration, which has been reduced by 30% for new solar photovoltaic plants.

Moreover, the mechanism adopted under the previous decree for determining whether a particular solar plant could benefit from the remuneration for solar photovoltaic generation (ie, the fixing of a particular date - September 29 2008 - for final registration with the registry) has significantly distorted the market, creating increased demand for modules, panels, inverters and other components for solar photovoltaic plants. This market distortion and the existence of different regional regulations for each autonomous community (since the administrative authorization for construction, commercial exploitation, substantial modification, transfer or closure of power generation plants within the special regime rests with the different autonomous communities) have necessitated the introduction of new measures intended to rationalize the growth of solar photovoltaic plants and to stimulate competition which, due to the excessive remuneration, has been absent in the government's opinion.

The new system of regulation is based on:

  • the rules governing the generation of electric power from renewable energies from the previous decree, which are adapted to the actual industry and the existing technology. The new decree does not supersede the previous decree, which remains applicable to existing plants generating renewable energy (including solar photovoltaic plants), except for the rules relating to the tariffs for solar photovoltaic power generation;
  • the rapid increase in installed photovoltaic power capacity. The goal of 371 megawatts (MW) established in the previous decree was surpassed in May 2008, when more than 1,000 MW had been installed according to the National Energy Commission. Other industry sources have estimated the installed capacity at as much as 1,500 MW;
  • the absence, though not explicitly mentioned, of a mechanism for monitoring applications for administrative authorizations, which is directly linked to the unforeseen increase well above the goals fixed a year and a half ago;
  • the need to promote the development of photovoltaic roof plants, according to the general policy of supporting distributed small plants and following the example of countries such as Germany;
  • the need to enhance the competitiveness of photovoltaic technology, putting pressure on market prices of solar modules in order to achieve convergence with the cost of conventional generation technologies within a reasonable timeframe; and
  • the desire to avoid the fragmentation of single plants in order to benefit from a more favourable feed-in tariff - many parks have been divided into 100 kilowatt (kW) plants, formally owned by different companies, which are all managed centrally.

Royal Decree 1578/2008

Types of plant
The new decree establishes a new classification system for photovoltaic plants.

Type
Subtype
Description
I Photovoltaic roof plants or plants developed for similar surfaces
I I.1 Power plants with a capacity equal to or less than 20 kW
I I.2 Power plants with a capacity greater than 20 kW
II Any other type of plant (essentially, ground photovoltaic plants)

Type I photovoltaic plants shall not exceed a capacity of 2 MW. Type II plants shall not exceed 10 MW.

Registration for pre-assignment of tariff
To be entitled to the feed-in tariff established by the new decree, a plant must be recorded in the Register for Pre-assignment of Tariff, which is a new subsection of the existing Administrative Special Registrer and is managed solely by the General Directorate for Energy and Mines of the Ministry of Industry, Tourism and Commerce, without any involvement of the autonomous communities. Registration in the Register of Pre-assignment of Tariff is without prejudice to the mandatory registration of the relevant solar photovoltaic plant in the Administrative Special Register.

Registration in the Register for Pre-assignment of Tariff will be required by temporary announcements. Each announcement will fix time and capacity limits for remuneration with the feed-in tariff.

Capacity quotas
The government has limited the feed-in tariff for the first year to a maximum power capacity of 400 MW. Two-thirds of the quota (ie, 267 MW) will be reserved for photovoltaic roof plants (in particular, 10% for plants corresponding to Subtype I.1 and 90% for plants included in Subtype I.2), and the remaining third (133 MW) for ground photovoltaic plants. These quotas shall be divided among announcements from the Ministry of Industry.

For 2009 and 2010 the government has allowed for additional extraordinary quotas of power capacity amounting to 100 MW and 60 MW respectively, which shall not modify the existing feed-in tariff.

Administrative procedure for registration
The new decree establishes the procedure for the registration of new photovoltaic plants in the Register of Pre-assignment of Tariff. Registration priority is based on the date of application for registration and, if multiple applications were applied for on the same date, the date of the remaining documents filed for registration. Likewise, the new decree establishes the amount of the guarantees required under Article 66(bis) of Royal Decree 1955/2000, as well as the procedure for the release or cancellation and enforcement of such guarantees upon voluntary dismissal by the developer of the plant, or where the developer has not met the information requirements or any other request from the public administration within three months.

Economic regime
The new economic regime significantly reduces the amount of the previous regulated tariffs, though not in the proportion that was initially announced (the draft of the new decree that circulated last July proposed €0.29 per kilowatt-hour (kWh), which caused considerable controversy and opposition from trade associations).

The tariff for photovoltaic plants from the first announcement is set out in the following table.

Type
Subtype
Feed-in tariff rate (€ per kWh)
I I.1 0.34
I I.2 0.32
II 0.32

For subsequent announcements the relevant tariffs will be calculated on the basis of the results of the preceding announcement. If the approved power capacity for the new announcement does not exceed 75% of the approved capacity of the preceding announcement, the feed-in tariff will be maintained. If the capacity exceeds 75%, the feed-in tariff will be reduced.

If two consecutive announcements do not reach 50% of the agreed power quota for a particular type or subtype of plant, the government may increase the tariff through a grounded resolution from the General Secretariat for Energy in the same proportions by which the tariff would have been reduced if the relevant power quota had been reached.

Tariffs will be updated in accordance with similar provisions to those contained in Article 44.1 of the previous decree, as from January 1 of the second year after the relevant announcement.

Inspections
The new decee (as advanced by the Ninth Additional Provision of Order ITC/1857/2008 in connection with the plants registered with Administrative Special Registry by September 29 2008) mandates the commission to carry out regular and random inspections of those plants it governs, which represent in aggregate at least 5% of the plants and 5% of installed capacity. The purpose of these inspections is to verify compliance with the accuracy requirements for information provided about plants accoding to the administrative procedure.

Release of guarantees
The entry into force of the new decree is considered sufficient to require the release of the guarantees referred to in Articles 59(bis) and 66(bis) of Royal Decree 1955/2000 in connection with solar photovoltaic plants for which registration in the Register for Pre-assignment of Tariff will not be requested or which have not been registered within 12 months of registration being requested by an announcement.

This provision is intended to facilitate the withdrawal of developers (primarily due to lack of expected profitability) from projects initiated before the entry into force of the new decree.

Second Additional Provision

The second additional provision initially generated some concern within the industry. It originally stated that:

"In general, for the purposes of the provisions of Article 17(c) and 22.1 of Royal Decree 661/2007 of May 25, it is deemed mandatory in order to benefit from the regulated tariff or, if applicable, the premium, to initiate the sale of the net output of electric power before the deadline, as evidenced by the appropriate record of measure on the measurement devices before that date."

It could be construed that the provision establishes a new requirement not included in the previous decree. If so, certain doubts may arise as to whether a new requirement for receiving the tariff established in the previous decree (ie, the sale of power output before September 29 2008) may be required of the solar photovoltaic plants registered before September 29 2008. According to that interpretation of the regulation, access to the tariff established in the previous decree would depend not on final registration in the Administrative Special Register, but on the sale of electricity power on or before September 29 2008.

However, another interpretation is that the new requirement does not apply to photovoltaic plants that comply with the requirements set out in the previous decree and Ministerial Order ITC 3860/2007 of December 28 2007 implementing the economic regime of the previous decree. This is because the introduction of a new requirement for plants registered on or before September 29 2008 would imply a breach of the legal certainty principle (as contained in Article 9 of the Constitution), as the regulation would apply a new and unforeseen requirement for access to the feed-in tariff regulated in Article 36 of the previous decree. Moreover, only one day elapsed between the date of publication of the new decree and the September 29 2008 deadline, so it was not possible to comply with the new requirement on or before the deadline.

As a result of the concerns expressed by the solar industry regarding interpretation of the provision, the government published a statement of amendment in the Official Gazette whereby the sale of power output is required only as from October 1 2008 and consequently does not apply to photovoltaic plants registered on or before September 29 2008.

Notwithstanding the foregoing, for the remaining technologies (eg, thermo-solar plants) the second additional provision will apply. Therefore, plants which come into operation after its entry into force will benefit from the feed-in tariff of the previous decree only if, in addition to final registration before the relevant deadline, they started the sale of power output on or before such relevant date.

In this regard it is significant that the reference to the "the relevant deadline" contained in the provision will be construed as referred to the deadline established in Article 22 of the previous decree.

According to Article 22 of the previous decree, the deadline for the application of the economic incentives provided in the previous decree shall be determined for each technology by resolution of the General Secretariat for Energy, taking into account the average term for the completion of projects and the implementation of the new technologies.

So it seems that the second additional provision is significant for renewable electricity production technologies that - unlike photovoltaics - have not yet reached the targets under the previous decree, but does not apply to solar photovoltaic installations which meet the requirements for receipt of the tariff provided in Article 36 of the previous decree.

Summary

The new decree reduces the feed-in tariff by 30% for new photovoltaic plants and introduces measures to rationalize the growth and dissemination of photovoltaic plants and to increase competition.

The provisions of the previous decree still apply to power generation plants that use renewable energy technologies (including solar photovoltaic technologies), except in connection with the remuneration regime.

The new decree includes a new classification of photovoltaic power plants.

In order to obtain the relevant feed-in tariff, a plant must be registered in the Register for the Pre-assignment of Tariff. Registration will be associated with certain temporary announcements and power quotas. For the first year this is 400 MW, comprised of 267 MW for solar photovoltaic roof plants and 133 MW for ground plants. For 2009 and 2010 the government may establish extraordinary additional power quotas of 100 and 60 MW.

The second additional provision of the new decree appears to establish a new requirement on solar photovoltaic plants recorded in the Administrative Special Register before September 29 2008 that wish to benefit from the feed-in tariff of the previous decree. This new requirement, which could be in breach of the legal certainty and legitimate trust principles, could not easily be fulfilled.

A construction of the second additional provision in line with the legal certainty principle as contained in the Constitution would imply that this requirement is applicable only to the remaining technologies (eg, thermo-solar). Accordingly, plants in operation after the entry into force of the new decree will benefit from the feed-in tariff set out in the previous decree only if, having obtained final registration in the register on or before the relevant deadline, the plant started the sale of its net power output before such deadline.

The latter interpretation has been confirmed by the Spanish government as expressed in the statement of amendment published in the Official Gazette on October 17 2008.

For further information on this topic please contact Hermenegildo Altozano or Alfonso Bayona at Lovells by telephone (+34 91 349 8200) or by fax (+34 91 349 8201) or by email (hermenegildo.altozano@lovells.com or alfonso.bayona@lovells.com).


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