The basic regulation that currently governs the structure and operation of the power industry sector is Law 24/2013 of December 26th on the Electricity Sector (LSE).

The LSE maintains a distinction between regulated activities (transmission and distribution) and non-regulated activities (generation – including storage – and supply), and promotes effective competition in the sector, improving the position of the consumer.

There is therefore a separation between regulated and liberalised activities. According to the LSE, companies that carry out any or some of the transmission, distribution and operation activities of the system must have as their exclusive corporate purpose the development of the same without being able, therefore, to carry out production, supply or energy recharging services, or acquire shares in companies that carry out these activities.

At present, only the natural monopolies of the transmission and distribution networks exist, and belong, respectively, to the Spanish TSO (which is Red Eléctrica de España, SAU (REE) in accordance with Law 17/2007) and to the distribution companies.

To the extent that the development and operation of physical cable networks is subject to significant economies of scale, network undertakings cannot and should not compete with each other by inefficiently duplicating facilities in the same area, since this would result in a sharp and unjustified increase in regulated costs for the consumer.

Despite these monopolies, access to them by third parties to the grid is ensured through the application of the principles of equality, non-discrimination, and objective and transparent conditions. Such access is also guaranteed by the National Commission of Markets and Competition (CNMC), and ultimately by the courts.

The main public entity involved in the electricity sector is REE, which is 80% owned by the government of Spain (the remaining 20% being floating capital).

There are no companies for generation, distribution and supply of electric energy owned by the State (whose main intervention is to participate in the shareholding of the TSO). Some local entities (municipalities) hold stakes in electricity distribution and supply companies.

The main private companies in the field of generation are: Iberdrola, Endesa, Naturgy, Totalenergies, EDP and Repsol.

The main private companies in the electricity distribution sector are: Endesa, Iberdrola, Naturgy, Totalenergies and EDP.

The main private companies in the field of electricity marketing are: Iberdrola, Endesa, Naturgy, Totalenergies, EDP and Repsol.

The mechanism for controlling foreign investments is regulated in:

• Article 7 bis of Law 19/2003;
• the Second Transitional Provision of Royal Decree-Law (RDL) 11/2020;
• the Single Transitional Provision of RDL 34/2020; and
• Royal Decree (RD) 664/1999 and RD 571/2023.

To this effect, foreign investors include the following.

Non-European investors are:

• residents outside the EU and European Free Trade Association (EFTA); and
• EU or EFTA residents whose beneficial ownership (direct or indirect control of 25% of voting rights or otherwise) is held by non-EU and EFTA residents.

Non-Spanish Europeans are:

• residents of the EU and EFTA countries other than Spain; and
• residents in Spain whose beneficial ownership corresponds to residents of EU and EFTA countries other than Spain.

Conversely, in accordance with the aforementioned regulations, foreign direct investments are as follows:

• investments as a result of which the foreign investor acquires a stake equal to or greater than 10% of the share capital of a Spanish company;
• a corporate operation, act or legal transaction as a result of which the foreign investor acquires control of a Spanish company or of all or part of it in accordance with the criteria established in Article 7.2 of Law 15/2007; and
• where the investor is a non-Spanish European, the transaction must relate to a company listed in Spain, or, if it is carried out on an unlisted one, the value of the investment must exceed EUR500 million.

Not all foreign direct investments are subject to control, but depend:

• on the sector in which the company to be invested carries out its business; and
• on the subjective characteristics of the foreign investor if they are a non-European investor, regardless of the business of the company in which they invest.

Foreign direct investments in the following sectors are subject to the control mechanism:

• critical infrastructure, whether physical or virtual (including energy infrastructure);
• critical technologies (energy storage);
• supply of critical inputs (such as energy); and
• investment in companies or assets providing access to sensitive data related to critical infrastructure, and to databases on the provision of essential energy supplies.

Energy companies falling within these categories are nevertheless exempted from requesting authorisation in four cases:

• where the target does not engage in regulated activities (eg, operation of the system and the electricity market, the transmission and distribution of electricity, the supply of electricity in non-peninsular territories, regarding the electricity sector);
• where the acquirer does not become a dominant operator in the energy sectors as a consequence of the transaction;
• where the investment involves the acquisition of electric power production assets, and the share of installed power by technology is below 5%; and
• where the foreign investment involves the acquisition of a company that carries out the activity of supply of electricity, and the acquired company has less than 20,000 customers.

The foreign direct investments of non-European investors are also so subject, regardless of the sector in which they invest, in certain situations (eg, where a foreign investor is controlled directly or indirectly by the government, or has made investments or participated in activities in sectors affecting security, public order and public health in another member state, and in particular in sectors subject to control).

The Council of Ministers or, in the case of investments below EUR5 million, the International Trade General Directorate, has three months to notify its decision. Absence of notification within this period is legally considered a refusal of the authorisation. The parties are allowed to submit a previous consultation to ascertain whether the transaction is covered. The administration must reply within 30 working days with a binding answer.

The protection of foreign investors in the energy sector is covered by Spain’s subscription to the Energy Charter Treaty (ETC), without prejudice to the existence of bilateral treaties. The mechanisms for settling (through international arbitration) possible disputes that may arise between the investor and the host state of the investment regarding the latter’s breach of the obligations are usually the following:

• the option of ad hoc arbitration, in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL); and
• the option of institutional arbitration, with two possible arbitration modalities included in most agreements – the Paris International Chamber of Commerce (ICC) and the Washington-based International Centre for Settlement of Investment Disputes (ICSID).

The ETC’s protection has been used in recent years to litigate regarding signatories over climate policies designed to phase out fossil fuels and regarding the regulatory modifications made to the remuneration regime for RRE. Several EU member states (Spain, the Netherlands and Luxembourg) have initiated the procedure for withdrawing from the ETC.

In accordance with the provisions of Additional Provision 9th Law 3/2013, the ministry responsible for energy (currently, the Ministry for the Ecological Transition and the Demographic Challenge (MITERD)) must know, in relation to the electricity sector, of the following operations:

• a)       the taking of shares in companies or by companies that carry out activities that are considered regulated (distribution and transmission), that consist of the operation of the electricity market or that are activities in insular or extra-peninsular territories;
• b)       the taking of shares in companies or by companies that own the assets required to carry out the activities referred to in point (a) or assets of the energy sector of a strategic nature included in the National Catalogue of Critical Infrastructures defined in Law 8/2011 (nuclear and most-important coal-fired power plants will be considered strategic assets); and
• c)       acquisition of the assets referred to in point (b) above.

Companies that carry out activities included in (a) above must communicate to the MITERD acquisitions made directly or indirectly. The communications must be made within 15 days of the completion of the corresponding operation, and indicate in a justifiable manner which part of the data or information provided is considered of commercial or industrial importance for the purposes of declaring its confidentiality.

Where the CNMC (and until the MITERD provides the necessary means to exercise this competence) considers that there is a genuine and sufficiently serious threat to the security of electricity supply in the context of the acquirer’s activities, it may lay down conditions relating to the pursuit of the business of the companies subject to the reported transactions, and the specific obligations which may be imposed on the acquirer to ensure compliance.

These risks shall relate to the following aspects:

• security and quality of supply;
• security against the risk of insufficient investment or maintenance in infrastructure; and
• failure to comply with the requirements of legal, technical, economic and financial capacity of the purchaser or the acquired company.

For these purposes, the shares that the acquirer has or intends to acquire in other companies or assets will be taken into consideration.

These provisions also apply when the acquisition is made by entities of states that are not members of the EU or the EEA.

The conditions imposed shall in any event respect the principle of proportionality and protection of the general interest.

The same ministry is responsible for supervising compliance with the conditions imposed, and the affected companies must comply with any information requirements that may be issued for this purpose.

The resolution must be adopted in a reasoned manner and notified within a maximum period of 30 days from the communication, following a report from the CNMC. This report will not be binding and must be evaluated within ten days.

Among its competencies, the MITERD oversees the basic regulation of activities aimed at the supply of electricity, adopts the necessary measures for guaranteeing this, and establishes the quality and safety requirements that govern the supply of electricity in terms of safety, quality, efficiency, objectivity, transparency and minimum cost (Article 3 LSE). It also possesses the functions described in 1.4 Law Governing the Sale of Power Industry Assets.

The regional authorities (autonomous communities) are also competent to ensure the supply of energy in their respective territorial areas.

The CNMC supervises:

• the operation of the system;
• third-party access to the networks;
• compliance with the rules of security and reliability of the networks;
• the adequacy of prices and supply conditions for final consumers; and
• investments in generation capacity that guarantee security of supply (Article 7 Law 3/2013).

The network planning process is a participatory process involving the general state administration, the regional administrations, the CNMC and the TSO, as well as all the interested subjects of the electricity sector.

The planning of the transmission network takes into account technical and economic criteria, so that new investments can be justified by the benefits derived from efficient system management and by the benefits derived from a safer operation that minimises unserved energy.

See the Agreement of the Spanish Council of Ministers of 22 March 2022 on the planning of the electricity transmission grid, Horizonte 2026.

Due to the increase in energy prices and the consequences of Russia’s invasion of Ukraine, the following regulatory modifications have been approved in Spain during 2022 and 2023.

• Fiscal measures:
1. suspension of the Tax on the Value of Electricity Production (IVPEE) from 1 July 2021 (RDL 17/2021);
2. reduction of the Special Tax on Electricity (IEE) from 5.1% to 0.5% (RDL 17/2021); and
3. VAT deduction on electricity consumption.
• Implementation of an extraordinary tax for the energy sector of 1.2% on the domestic income of the largest companies in the years 2022 and 2023.
• Measures targeting vulnerable electricity consumers (RDL 23/2021, RDL 18/2022, RDL 17/2021). The regulation of such discounts on electricity bills has undergone several changes in the last year (RDL 6/2022 and RDL 10/2022) that have affected the methodology of its financing.
• Administrative processing measures: since the end of 2021, various RDLs have introduced different measures aimed at simplifying procedures and reducing administrative deadlines for new electricity generation facilities of renewable origin.
• Measures aimed at promoting energy saving: in the case of electricity, the most relevant measure has been the establishment of an active demand response service, defined in RDL 17/2022 and which began operation in November 2022 for a period of one year (until 31 October 2023).
• Specific measures for the CHP sector: RDL 6/2022 establishes specific rules for updating operational remuneration for the year 2022, and establishes criteria for setting updates for the year 2023 and later.
• Measures on the Voluntary Price for the Small Consumer (PVPC), approved by RD 446/2023. Currently, the PVPC considers a basket of prices at different terms in the futures markets (monthly, quarterly and annual).
• Finally, RDL 5/2023 introduced the following modifications:
1. development of the regulation of renewable energy communities and citizen energy communities;
2. regulatory measures for promoting electric vehicles, and modifications for the processing of recharging points; and
3. tax incentives to encourage the purchase of on-grid rechargeable electric vehicles and fuel-cell electric vehicles.

A number of proposals with particular impact on the energy sector are currently being processed.

• The creation of the National Fund for the Sustainability of the Electricity System (FNSSE). The FNSSE distributes progressively, with a transitional period of five years and an extensive system of exemptions and compensations, costs associated with the specific remuneration system (premium) for renewables, CHP and waste (RRE) that came into operation before 2012 and that continues to receive remuneration. When the FNSSE enters into force, these costs will be progressively eliminated from electricity charges and will be distributed among the electricity, liquid and gaseous hydrocarbon suppliers.
• The establishment of a mechanism for reducing income associated with revenues from non-emitted CO2. This applies to non-emitting infra-marginal generators installed before 2003, which in practice means nuclear and hydroelectric (plus a small group of wind turbines).
• Call for a new auction instrument for long-term energy contracting, provided for in RDL 17/2021. Through these auctions, operators classified as dominant would be obliged to make forward contracts available to suppliers, with a pre-established maturity period, of a part of their infra-marginal, manageable and non-CO2-emitting generation (that is, nuclear and hydraulic generation).
• Approval of the legal framework regarding the holding of tenders for granting access and connection to the electricity transmission network. A tender is supposed to award 5.8 GW of capacity to renewable energy and storage facilities, applying socio-economic and environmental criteria that guarantee the creation of wealth in the areas that host the facilities and the protection of the natural environment, as well as applying technological and temporary criteria to promote self-consumption and accelerate the growth of clean generation. Each participant must provide the economic guarantees, which is quite onerous.
• Approval of the methodology regarding updating remuneration for the operation of CHP facilities.
• Approval of a framework regarding calls to award a regulated remuneration for a total of 1,200 MW for CHP. The facilities of successful bidders will be able to operate with natural gas or biomass and, in addition to providing high efficiency, must be prepared to consume at least 10% of renewable hydrogen, as well as self-consume more than 30% of electricity production.
• Finally, the reform of the electricity market is being studied within the framework of the EU. In this regard, it is worth mentioning the proposal submitted by the Spanish government in January 2023, which basically consists of the following:
1. establishing a fixed and regulated price for energy produced in nuclear and hydroelectric power plants;
2. each country enjoying the possibility of intervening in the electricity market, at least to some degree;
3. the price of solar and wind power production being largely set by auctions; and
4. the CCGT and pumped hydroelectric plants being in a pricing system called “capacity auctions”.

Two important aspects of the power industry should be mentioned.

Measures to Limit the Price of the Electricity Market (the Iberian Mechanism)

On 15 June 2022, the temporary adjustment mechanism for production costs in the electricity market, developed in RDL 10/2022 of May 13, came into operation and has been extended until 31 December 2023. Companies that use gas or coal must make offers “as if” the price of gas were EUR40/MWh (gas).

The difference between that limit price and the daily gas price, calculated and published by the MIBGAS (the Spanish wholesale natural gas market), is divided by 0.55.

The result is a “daily unit amount of the adjustment”, defined in EUR/MWh (gas), which is compensation for the corresponding generators.

The cost is borne by consumers with contracts indexed to the wholesale market (including small consumers covered by the PVPC) and, in any case, all those with contracts signed after 26 April 2022 and consumers with forward contracts (that is, not directly referenced to the daily market) signed before that date, as they are renewed or modified.

Measures to Limit the Income Obtained by Generators

RDL 17/2021 provisionally introduced (initially until 31 March 2022, a date subsequently extended) a reduction in the revenues associated with the transmission of the electricity price of natural gas prices above a certain level or floor price, which stands at EUR20/MWh (gas).

Through this adjustment mechanism, generators retain 10% of the difference in income derived from a higher price of gas in the MIBGAS with respect to the established floor price, but 90% is deducted in the market settlement. Plants located in non-peninsular territory, those with a net capacity of less than 10 MW and RRE facilities are not affected by this mechanism.

RDL 23/2021 specified that the energy covered by any forward contracting instrument was exempt from the reduction. Additionally, RDL 6/2022 (Final Provision 34a) integrated energy subject to term contracts concluded after March 29th at a price higher than EUR67/MWh. The income extraction mechanism has been extended until 31 December 2023 (RDL 18/2022).

There is no “electricity market”, but rather a set of trading platforms in which electricity is contracted for delivery in different time horizons that can be forward (for the coming weeks, months, quarters or years) or spot (for the next day or the following hours). In other words, the electricity market in Spain, as in other countries, is organised as a sequence of markets in which generation and demand exchange energy and reserves on different terms.

The Spanish day-ahead electricity market is coupled with the markets of Portugal and France. The market is managed by OMIE, a private entity responsible for ensuring that contracting is carried out under conditions of transparency, objectivity and independence.

The forward markets that negotiate electricity with reference to the Spanish market are the following:

• the over-the-counter (OTC) market for bilateral contracts, in which physical and financial contracts are traded; and
• the organised electricity futures markets managed by OMIP and based in Portugal, EEX-ECC based in Germany, and BME based in Spain.

Each of these markets is characterised by different levels of organisation (standardisation of contracts, centralised management by an independent entity, etc).

In Spain, the market is marginalist. With the inputs from sellers and buyers, OMIE creates the supply and demand curve in each time block. At the intersection of both curves is the market price for each hour. In this way, the price is the matching price of supply and demand: all sellers who have launched their offer with a price equal to or lower than the market price will find their energy sold; while in return all buyers who have launched their offer with a price equal to or lower than the market price will have their purchase offer accepted. This applies to all cases at that market price, although some sellers will have offered a lower price for the sale of their energy. As such, it is the margin price (or marginal price) which is considered the market price at each hour of the day.

The international interconnection facilities in Spain are part of the transmission network operated by REE.

Internalisation regarding offers of generators for the cost of allowances adversely affects industries that compete internationally, and therefore cannot internalise the cost of allowances. This also affects international electricity trade. The “border adjustment mechanism” provided for in the Fit For 55 Package protects industries at risk of relocation, and allows free allowance allocations to be completely eliminated. In any case, it is possible that the mechanism is interpreted by some countries as a protectionist system and gives rise to conflicts in the World Trade Organization (guarantor of compliance with the General Agreement on Tariffs and Trade, GATT).

The data for the first quarter of 2023 for each energy source, according to REE and indicated in GWh, are as follows:

• wind – 14.180;
• hydro – 6.986;
• solar – 4.449;
• other renewable energy – 757;
• solar thermal – 366;
• renewable waste – 163;
• hydro-wind – 3;
• renewable generation (50.9%) – 26.904;
• nuclear – 11.124;
• CCGT – 8.505;
• CHP – 3.487;
• pumped turbine –875;
• coal – 855;
• diesel engines – 446;
• steam turbine – 271;
• non-renewable waste – 254;
• gas turbine – 139;
• non-renewable generation (49.1%) – 25.956.

According to REE, Spain is in second position in Europe for installed renewable capacity, and renewable energies are increasing in the European generation mix.

Without prejudice to the rules governing foreign direct investment in Spain (Law 19/2003) and the general control of foreign subsidies (Regulation EU 2022/2560), the acquisition of energy companies is subject to general merger control rules. Under these rules, the CNMC may ban transactions that imply a significant lessening of competition in the affected market(s). This limit is to be set on a case-by-case basis.

Spanish merger control rules only apply if the transaction does not fall under the jurisdiction of the European Commission or if the EU merger control rules do not apply. In particular, Law 15/2007 sets forth a system of mandatory prior control by the CNMC when transactions reach a certain market share (Article 8.1a) or a certain turnover (Article 8.1b). The market share notification threshold (generally 30% and 50% in certain cases) is especially relevant in the energy sector, since it does not take into account the volume of the transaction, but rather its impact on particular markets (eg, markets for petrol stations or electricity distribution are local in scope).

As in the EU regime, a concentration’s operations subject to the notification obligation are subject to a general standstill obligation until authorised.

Finally, it is worth mentioning Law 17/2013, which, in order to promote greater competition and transparency, restricts participation for those operators that hold a dominant position in the generation activity, favouring the entry of new owners of generation facilities in the Canary Islands.

The additional remuneration regime may not apply to new facilities owned by a company or business group that has a percentage of electricity generation power greater than 40% in that system (currently, ENDESA-ENEL Group).

Conversely, an exception to the limitation on ownership is established for companies that own facilities which on 1 March 2013 meet any of the following requirements:

• have been awarded in capacity tenders for the implementation of production facilities from renewable energy sources;
• have administrative authorisation for the facilities; and
• have been registered in the register of pre-allocation of remuneration for special regime facilities.

Anti-competitive behaviour is prohibited in Spain by Articles 1 and 2 of Law 15/2007, which are essentially the same as Articles 101 and 102 of the TFEU. In addition, Article 3 of Law 15/2007 prohibits any unfair behaviour that might significantly alter competition in the market. This overlap with the rules of unfair competition is especially significant in the energy sector, as it implies the ability to investigate unilateral behaviour by non-dominant undertakings. There have been significant cases applying Article 3 where energy companies did not comply with the sector regulation (eg, did not provide mandatory client information to rivals or merge regulated and non-regulated activities) that resulted in competition fines.

In Spain, the CNMC assumes both the role of energy sector authority and antitrust authority, so control of potentially anti-competitive behaviour is closely monitored. In addition, regional competition authorities also have powers to control potential infringements that do not have any impact beyond the regional limits. While the energy markets tend to be national in scope, in certain cases there might be an overlap between the two authorities. In these cases, conflicts are resolved by an inter-regional mechanism.

In the last 12 months, the CNMC has opened three different investigations on alleged anti-competitive practices.

Between 28 November and 2 December 2022, the CNMC carried out inspections at the headquarters of several operators in the Spanish energy sector within the framework of a confidential inquiry opened following the submission of several complaints.

In March 2023, the CNMC started an investigation against a power generation company for an alleged abuse of dominant position in the market regarding access and connection to the electricity transmission network.

In April and June 2023, the CNMC also conducted inspections on electricity companies to verify potential anti-competitive practices in the markets regarding the installation of equipment and the provision of electricity metering services, electricity supply, the provision of energy services, and the installation and operation of self-consumption in Spain.

Infringements of Articles 1 and 2 of Law 15/2007 may entail fines up to 10% of the company’s turnover. Fines under Article 3 may entail fines up to 5% of the company’s turnover. The investigation must also result in personal fines as regards the directives involved for the behaviour, and a prohibition on participation in public procurement processes.

Finally, competition authorities may also conduct market investigations in order to identify competition hurdles or concerns in the Spanish markets. These market investigations can only result in regulatory modifications, and do not have a sanctioning nature.

On 28 June 2023, three years after the previous update, the Draft of the new Integrated National Energy and Climate Plan 2030 (NECP) was published for the period 2023–2030, and must be sent to Brussels no later than 30 June 2023, in accordance with the provisions of the l Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action.

The NECP Draft establishes a total installed capacity in the electricity sector of 214 gigawatts (GW) by the end of the decade.

By 2030, wind energy should increase from a target of 50 GW to 62 GW, and photovoltaic should increase from 38 GW to 76 GW, without counting self-consumption which is expected to increase up to 19 GW.

For biogas, the government has approved a target increase of 35 bcm by 2030.

Green hydrogen is expected to increase from the 8 GW of the previous plan to the 11 GW of installed electrolysers.

Different storage technologies, such as pumping hydro and batteries, are expected to increase from 8 GW to 22 GW, including solar thermal storage.

For the reduction of emissions, an increase of 23% to 32% has been established (compared to 1990).

Downward forecasts are expected regarding other technologies such as nuclear, combined cycles or CHP.

The closure schedule for nuclear power plants remains as designed, reducing generation to 3,181 MW by 2030, as well as for that of combined cycles, which will maintain generation up to 2030 for a total of 26,612 MW.

CHP generation, as it appears in the Draft, will be reduced to 3,784 MW by 2030.

The draft NECP estimates the mobilisation of an investment of EUR294,000 million, of which 85% will be private and 15% will be public (11% of European funds). 40% of the investment will go to renewable energies, 29% to savings and efficiency, 18% to energy networks, and 12% to the electrification of the economy, which should reach 34% by 2030.

According to the Draft NECP (see 3.1 Climate Change Law and Policy), and together with the forecast of future CO2 emission prices, as a result of the application of EU market-based instruments (tCO2eq price of EUR76 in 2030 at constant 2016 prices, according to the parameters recommended by the European Commission for updating the NECP) and the relative price of gas, coal-fired power plants are estimated to cease providing power to the system from 2025.

In fact, from 2011 to 2021, coal-fired electricity generation was reduced by 88%, as reflected in REE’s annual reports.

To accompany the effects of these closures, the “Agreement for a Just Energy Transition for thermal power plants in closure” was signed between the government of Spain, the companies that own the plants and the unions, with the aim of implementing measures to support workers and promote alternative investments in the affected areas.

The Framework Agreement for a Just Transition of Coal Mining and the Sustainable Development of Mining Regions for the Period 2019–2027 was signed on 24 October 2018.

The “Agreement for a Just Energy Transition for thermal power plants in closure” incorporated the plants of three companies in 2020, and those of an additional company in 2021, thus incorporating all coal plants in Spain.

Likewise, in 2023 the Just Transition Agreements were developed in affected areas to support new business and industrial initiatives, local social and environmental infrastructure, aid for workers and environmental restoration works of mines.

Finally, it should be noted that in the particular case of island territories, there is a greater contribution from coal, fuel or diesel power plants than in the peninsular mix.

PERTE

Within the context of the Recovery, Transformation and Resilience Plan (and its Addendum approved on 6 June 2023), the figure of the PERTE (Strategic Projects for Economic Recovery and Transformation) should be mentioned.

The PERTE are a new instrument of public-private collaboration in which the different public administrations, companies and research centres collaborate.

With designation as PERTE, a sector is identified as a key area for the future of the economy. 12 strategic projects have already been approved, but it is worth mentioning in chronological order those most linked to the electricity sector.

PERTE for the Development of the Electric and Connected Vehicle (approved by the Spanish Council of Ministers on 13 July 2021)

Its central axis is the creation of the ecosystem necessary for the development and manufacture of electric and connected vehicles by boosting the automotive industry (with strong traction on other economic sectors), to respond to the new sustainable and connected mobility and the generation of new activities. Order ICT/1466/2021, Order ITC/359/2022 and Order ICT/209/2022 regulate the aid corresponding to these PERTE.

PERTE for Renewable Energies, Renewable Hydrogen and Storage (approved on 14 December 2021)

The PERTE ERHA have been approved with an investment of more than EUR16.3 billion.

The MITERD launched a first call for grants for innovative hybridised energy storage projects with electricity generation facilities from renewable energy sources, with a budget of EUR150 million.

The MITERD also launched two calls for pioneering and unique renewable hydrogen projects with commercial viability of local production and consumption of renewable hydrogen, especially in sectors where decarbonisation is more difficult, such as industry or heavy mobility (Pioneros I and Pioneros II), endowed with EUR150 million each.

The Institute for Energy Diversification and Saving (IDAE) manages these grants.

The types of eligible actions include green hydrogen production facilities (with a maximum power of 50 MW of electrolysis), distribution, industrial uses and heavy mobility, as well as innovative stationary applications, such as ports, airports, logistics platforms and storage systems with re-electrification.

The requirements for accessing these grants are available on the IDAE website. The maximum endowment which each file may opt for is EUR15 million, provided that the project exceeds a minimum investment of EUR1 million. According to Article 12, the regulatory bases of the calls for PERTE ERHA where the successful bidder wishes to receive advance payments must present an additional guarantee. The following entities may benefit:

• companies, consortia or business groups (if they have at least the participation of an SME);
• entities of the institutional public sector, including those of private law that depend on public administrations; and
• public universities and affiliated technology centres.

Among the award criteria, the following will be considered in addition to the participation of SMEs:

• the effectiveness of public aid;
• the positive impact on islands;
• Just Transition and Demographic Challenge areas;
• emission reductions;
• circular economy;
• job creation; and
• gender equality.

Industrial Decarbonisation PERTE (approved on 27 December 2022)

Following a commitment to support industry in its transition towards more environmentally friendly models and processes, and to contribute to the objective of climate neutrality by 2050, this PERTE foresees a public investment of EUR3.1 billion that will allow mobilising up to EUR11.8 billion of total investment.

It is worth noting the approval of a line of aid to manufacturing companies participating in the Project of Common European Interest (IPCEI) on the industrial chain of hydrogen of renewable origin, with public funding of EUR450 million. Such aid has been granted directly on an exceptional basis for having accredited reasons of public, social or economic interest, or other duly justified reasons (RD 251/2023).

A distinction must be made between whether the authorising regime is the responsibility of the General State Administration or the Autonomous Communities.

According to the LSE (Article 3), the General State Administration has powers to authorise the following power facilities:

• peninsular electricity generation facilities, including their evacuation infrastructures, with an installed electrical power exceeding 50 MW, and peninsular primary transmission facilities and connections with a voltage equal to or greater than 380 kV;
• generation facilities including their evacuation infrastructures, secondary transmission, distribution, connections, direct lines, and the electrical infrastructures of electric-vehicle charging stations with power greater than 3,000 kW, which exceed the territorial scope of an Autonomous Community, as well as direct lines connected to generation facilities of state competence;
• generation facilities located in the territorial sea;
• generation facilities of installed electrical power exceeding 50 MW located in non-peninsular territories, where their electrical systems are effectively integrated with the peninsular system; and
• primary transmission facilities and connections of nominal voltage equal to or greater than 380 kV located in non-peninsular territories, where these are electrically connected to the peninsular system.

The authorisation regime for these types of facilities mainly comprises RD 1955/2000 and Law 21/2013 on Environmental Impact Assessment, and its regulations.

Authorisation for the remaining power facilities corresponds to the Autonomous Communities in which they are located. Some of these Autonomous Communities have issued their own regulations (Decree 6/2015 in the Autonomous Community of the Canary Islands, DL 6/2019 in the Autonomous Community of Catalonia, etc). Additionally, the following should be highlighted:

• RDL 23/2020, RD 1183/2020 and Circular CNMC 1/2021, which regulate the procedure for accessing and connecting facilities to the transmission and distribution networks;
• RD 647/2020 of 7th July, regarding commercial operation requirements of power facilities;
• Royal Decree 244/2019 on administrative, technical and economic conditions of the self-consumption of electrical energy;
• Ministerial Order ITC/1522/2007 on guarantees of origin of electricity from renewable energy sources and CHP; and
• Law of 16 December 1954 on Expropriations (LEF), and its regulations.

Consideration should also be given to the regime for generation facilities that may receive a premium in addition to the income they receive from the market (RRE). RRE, established by RDL 9/2013 and developed by RD 413/2014, is based on the perception, where appropriate, of the income derived from participation in the market, with a specific additional remuneration articulated in the following.

• A term per unit of installed power (euro/MW) covering, where applicable, the investment costs of a typical facility that cannot be recovered by the sale of energy.
• A term for the operation (euro/MWh) covering the difference between operating costs and the revenues from market participation of that type of installation. In the case of CHPs, this remuneration for the operation must be updated at least annually.

For installations entitled to premium prior to RDL 9/2013, the new remuneration system guarantees until 31 December 2031 a reasonable profitability before taxes of 7.389%, provided that those facilities have waived before 1 April 2020 any arbitration or judicial procedure in which they are involved, according to RDL 17/2019. The remaining facilities with premium will have a reasonable profitability before taxes of 7.389%.

The regulatory process for obtaining all approvals necessary for the construction and operation of a commercial generation facility can be summarised as follows.

The first step in the construction of a power facility for feeding energy into the grid is to obtain the access and connection permit, to be granted by the transmission or distribution operator. This requires the prior provision of certain guarantees, according to the connection capacity requested. The general procedure will be that of temporal priority in the request to a terminated connection node. However, RD 1183/2020 provides for competitions (see 1.7 Announcements Regarding New Policies).

Subsequently, Article 115 of RD 1955/2000 establishes that the construction of power facilities essentially requires three steps.

• Previous administrative authorisation of the preliminary project of the power facility, and with the environmental assessment study, if applicable. The environmental assessment requires a specific procedure in which the environmental authority decides whether or not it is appropriate to carry out the activity subject to evaluation, and the conditions to be established for the protection of the environment (environmental assessment statement). Likewise, at the time of processing the environmental impact study and the administrative authorisation, the interested party must submit its project to a 30-day public information procedure. Reports will also be issued by public administrations and entities whose infrastructures may be affected (other generation facilities, rivers, roads, mining rights, livestock trails, telecommunications, etc). It should be noted that environmental assessment procedures for renewable energy projects have priority when located in areas of low and moderate sensitivity, according to the “Environmental zoning for the implementation of renewable energies” prepared by the MITERD.

• Approval of the execution project – This is a regulatory permit, independent of the municipal building licence. This approval can be processed jointly with the previous administrative authorisation.
• Operating authorisation – Once the project has been executed, this allows the power facility to be brought into operation (including commercially).

If it is necessary to purchase the necessary plots for the implementation of the facility or its evacuation grids, it will also be necessary to process the corresponding expropriation procedure (see 4.3 Terms and Conditions Imposed in Approvals for the Construction and Operation of Generation Facilities).

The authorisations will be granted without prejudice to other concessions, licences and authorisations that may be applicable. These include:

• exceptional authorisation to develop the generation activity on non-urban land;
• municipal construction licence – sometimes, this procedure is not necessary, such as when the project has been declared of public interest (as for the Canary Islands according to Law 11/1997); and
• activity and operating licences.

The regulation of these latter licences is regional and local, and consequently their processing will depend on the regional or local regulations applicable to the place where the facility is located.

Access and connection permissions may be subject to expiry, in accordance with the provisions of RDL 23/2020. If the access permit was obtained after 31 December 2017 and before the entry into force of RDL 23/2020 (ie, 25 June 2020), the following applies:

• application submitted and admitted for prior administrative authorisation – 6 months;
• obtaining the favourable environmental impact statement – 31 months;
• obtaining prior administrative authorisation – 34 months;
• obtaining the administrative authorisation of construction – 43 months; and
• obtaining the definitive administrative authorisation of exploitation – five years.

According to RDL 5/2023, these terms will be computed:

• from 25 June 2020 for facilities that obtained access permits prior to that date and after 31 December 2017; and
• from the date of obtaining permits since 25 June 2020 and before the entry into force of RDL 5/2023 (ie, 30 June 2023).

Additionally, promoters must pay the contribution for actions carried out in the transmission or distribution networks after obtaining access and connection permits for electricity generation facilities at voltage points greater than 36 kV.

The process for obtaining a modification is the same as when applying for a prior administrative approval. However, for those facilities whose authorisation corresponds to the General State Administration, this is not necessary in some cases – ie, regarding:

• no new environmental assessment;
• no more land affected;
• no more than 15% of the facility power;
• no change in generation technology nor alteration in safety; and
• no affect on other generation facilities in service.

In addition, regarding other types of authorisations, the following should be noted.

• The exceptional authorisation for the development of generation activities on undeveloped land may be limited in time under some regional urban planning legislation. Likewise, it is usual for some kind of financial guarantee to be required to restore non-urban land to its previous state. Its quantification depends on the applicable regional regulations.
• The municipal building licence also stipulates a maximum period for starting and completing the works, though this period may be extended for justified reasons depending on the applicable regional/municipal regulations.

The LSE grants developers of generation facilities the right to expropriate the land and rights that are necessary for the implementation of the facilities and their evacuation lines.

The usual practice is for the developer of a generating facility to reach an agreement with the owners of the land by setting up a lease or a surface right.

However, in those cases where this is not possible, the promoter may initiate before the authorising administration a procedure of declaration of public utility. This procedure will determine, after a public hearing and information regarding the public bodies and entities affected, the need to occupy such land.

The declaration of public utility for expropriation purposes is appealable both before the administrative authorities and before the courts. This type of expropriation is governed by the urgent procedure provided for in the LEF.

After the declaration of public utility, expropriation acts will be drawn up (where the goods and rights affected by the expropriation are precisely identified), and a price will be fixed.

Compensation must include the following items:

• the value of the area of land occupied by the posts, facilities, supports or supporting towers, etc;
• the amount of detriment caused by the easement, whether it relates to an aerial or underground lines passage; and
• compensation for damages arising from the temporary occupation of land for the storage of materials or for the development of the activities necessary for the installation and operation of the line.

The determination of compensation is regulated in the LEF and, regarding the value of the land, in accordance with Law 7/2015. This valuation can be challenged in court.

In order to decommission a facility, it is necessary to request an administrative authorisation for the closure of a facility.

The application must be accompanied by a closure project, which must contain:

• a report detailing the technical, economic, environmental or any other circumstances for which closure is intended; and
• a plan for the decommissioning of the facility.

Following a report from the CNMC and REE, the authorities must, within a period of three months, decide on authorisation to close the facility.

If there is no decision within three months, the application will be rejected and an administrative appeal may be filed.

The authorisation for the closure of the facility may impose on the licensee the obligation to dismantle it, with the consequent environmental obligations. Likewise, it will be necessary to obtain the corresponding municipal building permit for the dismantling of the facility.

The decision shall set the period of time (from the date of granting of the authorisation) within which the facility must be closed and, where appropriate, dismantled. The closure authorisation may expire legally if the indicated period passes.

In Spain, the electricity transmission network consists of:

• lines, transformers and other elements of voltage equal to or greater than 220 kV;
• those other facilities that, being of voltage less than 220 kV, fulfil transmission functions (in the islands, transmission is carried out at lower voltages); and
• facilities of international interconnections and with the insular and extra-peninsular systems.

The principal laws that govern the ownership, construction and operation of transmission lines and associated facilities are the same as those indicated for electricity generation facilities. See 4.1 The Construction and Operation of Generation Facilities. However, some additional rules specific to the activity of electricity transmission must be highlighted:

• RDL 13/2012, which limits the construction of new electrical infrastructure to infrastructure essential for ensuring the operation of the system in safe conditions;
• Law 17/2007 established the single transmission agent model, with REE being the owner of the entire transmission grid; and
• RDL 9/2013, RD 1047/2013, Circular CNMC 5/2019 and Circular CNMC 7/2019, in relation to the economic regime of transmission activity.

The regulatory process for obtaining all approvals necessary for the construction and operation of transmission lines and associated facilities are the same as those indicated for generation facilities. See 4.2 Obtaining Approvals for the Construction and Operation of Generation Facilities.

The following should be taken into account:

• it is not necessary to carry out the actions corresponding to access and connection; and
• the provisions of environmental regulations for such specific infrastructure must be complied with.

See 4.3 Terms and Conditions Imposed in Approvals for the Construction and Operation of Generation Facilities, where the terms and conditions as apply for a generation facility are similarly applicable to a transmission facility.

As mentioned previously, the activity of electricity transmission is a regulated activity. Remuneration assumes the following principles.

• The remuneration for investment will be of the assets in service not amortised.
• The accrual and collection of the remuneration generated by a facility put into service in year n begins in year n+2.
• The methodology will include incentives that correspond to quality of supply and reduction of losses.
• Circular CNMC 5/2019, which applies to the period 2020–2025, involves an adjustment in remuneration that occurs gradually throughout the regulatory period. The greatest impact is produced by the reduction in the financial remuneration rate, which represents a cumulative decrease of 5% for the entire electricity sector in the period 2020–2025. Conversely, the joint impact of the effect of the reduction on the financial remuneration rate and the methodological changes means a reduction in remuneration in that period of 7.3%.
• CNMC Circular 7/2019 approves the types of facilities and the unit reference values of operation and maintenance per fixed asset element for electricity transmission facilities. The estimated average reduction in remuneration for the period 2020–2025 for operation and maintenance is 10%.

The right to expropriate property and the right for the construction of a transmission line are the same as for a generation facility. See 4.4 Eminent Domain, Condemnation or Expropriation Rights.

The operation of electricity networks (transmission and distribution) is subject to significant economies of scale, which makes it a natural monopoly and makes the introduction of competition in these activities inefficient.

In accordance with Law 17/2007, REE is the only transmission company. In fact, according to Transitional Provision 9 of Law 17/2007, companies that as of the entry into force of this Law are owners of transmission facilities must transfer said facilities to REE, as transmission grid manager and sole transmission agent.

Transmission networks remain under a regulated scheme as they are a regulated activity that, given their intrinsic characteristics, are a natural monopoly.

For this reason, the costs of the networks, together with the costs outside the electricity supply, are passed on to all consumers according to the voltage level at which they are connected, through access tolls and charges.

• Access tolls are set by the CNMC. The methodology for their determination is contained in Circular CNMC 3/2020. They are unique throughout the Spanish territory, and should be calculated to cover all costs related to the remuneration of transmission networks. Access tolls are composed of a power term (Tp) and an energy term (Te).
• Charges are those payments that are not induced by consumers when they demand power or energy. Among others, charges will cover:
1. the extra costs of the generation activity from RRE;
2. the remuneration of the extra cost of the production activity in the electricity systems for the non-peninsular territories, with an additional remuneration regime; and
3. annuities corresponding to the deficits of the electricity system, with their corresponding interest and adjustments.

Like tolls, the charges are unique throughout the national territory and are established annually by MITERD Ministerial Order in accordance with the methodology established and included in RD 148/2021.

The right of third-party access to transmission and distribution networks is one of the guiding principles of the liberalisation of the electricity market: this has been confirmed by Spanish sectoral legislation and the acquis of the European Union.

Regarding the right of access and connection of generation installations, consumers also have such right. Indeed, the supply of electricity is a service of general economic interest, and the consumer may choose, at each supply point, between the following options:

• contracting for the energy with a supplier, access to the transmission and distribution networks, and the charges established through the supplier;
• contracting separately for the supply of energy (with a supplier), access to the transmission and distribution networks, and charges that are regulated (with the corresponding distributor); and
• buying energy directly in the production market, and contracting for access to the transmission and distribution networks, and charges that are regulated with the corresponding distributor.

All consumers have the right to contract for their energy in the free market, but only consumers with a contracted power of less than or equal to 10 kW also have the option of contracting for their energy in the regulated market (PVPC). In the free market, the marketer and the consumer freely agree on the conditions of their supply; in the regulated market, the consumer can only contract for PVPC with so-called reference suppliers.

In Spain, electricity distribution facilities are voltage lines below 220 kV that are not considered part of the transmission grid and its associated facilities.

The principal laws that govern the ownership, construction and operation of distribution lines and associated facilities are the same as those indicated for electricity generation facilities. See 4.1 The Construction and Operation of Generation Facilities.

RDL 9/2013, RD 1048/2013 and Circular CNMC 6/2019, which establish the regulated remuneration that distributors receive, must be specifically taken into account.

The regulatory process for obtaining all approvals necessary for the construction of and operation of electricity distribution facilities is the same as for transmission facilities. See 5.2 Obtaining Approvals for the Construction and Operation of Transmission Lines and Associated Facilities.

There are four requirements for carrying out the activity of distribution:

• certification attesting to its legal, technical and economic capacity;
• granting of the administrative authorisation for the distribution facility by the competent authority;
• approval by the MITERD for the corresponding remuneration for the exercise of the activity; and
• registration in the Administrative Register of Distributors, Suppliers and Qualified Consumers.

Modifications must apply for the same construction and operating permits, unless they are considered non-substantial modifications – namely:

• no new environmental assessment;
• no more than 10% of the power increase;
• no alterations to safety;
• no modifications in the lines route;
• no more positions; and
• no change in economic regime.

The economic regime of distribution is based on the following principles:

• the remuneration for investment will be of the assets in service not amortised;
• the accrual and collection of the remuneration generated by a facility put into service in year n begins in year n+2; and
• the methodology will include incentives that correspond to quality of supply and reduction of losses.

The joint impact of the effect of the reduction in the financial remuneration rate and the methodological changes is estimated at a remuneration reduction in that period of 4.5%.

The right to expropriate property and the right for the construction of a transmission line are the same as for a generation facility. See 4.4 Eminent Domain, Condemnation or Expropriation Rights.

Distributors are those commercial companies or co-operative societies of consumers and users which have the function of distributing electricity, as well as of building, maintaining and operating distribution facilities intended to place energy at points of consumption.

These functions are carried out in the different distribution areas of each company. In Spain, there are five large distributors and more than 300 small distributors with less than 100,000 customers, which develop their activities in the historical areas where they operate. See 1.1 Law Governing the Structure and Ownership of the Power Industry.

See 5.6 Transmission Charges and Terms of Service.