¡BREAKING NEWS! From a caretaker government to an undertaker government: new cutbacks to renewables?
After a period of increasing optimism in the renewable sector, which has generated a new wave of green field projects, M&A activities , renegotiations of contracts and new auctions in which we are playing an active role advising our clients, the new Secretary of State has come up stating that the theoretical profitability of 7.39% for renewables generators will not be maintained in the next regulatory period. Instead these may be reduced according to the evolution of the profitability of the 10-year Spanish bond, which would yield a return, at the moment, of around 4.3%.
After a meeting held by the Secretary of State for Energy with representatives of the photovoltaic sector, the Government assumes that the profitability of renewables facilities will vary according to the yield of the bond, confronting the argumentation that 7.39% was frozen for the whole technical lifespan, as established in the Additional First Provision of Royal Decree-Law 9/2013.
Before this alarming news, internally we have held several urgent conversations in the office, as well with several representatives of the sector, to decide how to act, with a worrying feeling that "we are back to black". First of all, we need to put up a fight in order to achieve that these Government intentions never see the light in any legislative form. There are legal arguments enough to doubt whether this can be approved for the new regulatory period without passing through the Spanish Parliament, as the differential rate of the remuneration must be approved by Law, as established in Article 19.2 of Royal Decree 413/2014.
In case the proposal were approved, it would be necessary to re-analyze the legality of the remuneration system at the light of this new perspective. It is crystal clear that with this in force it would be impossible to determine ex ante the profitability of any project, making these unbankable and thus creating an economic nonsense. Because of this, we will have to re-inform the European Commission about the confirmation of this fear, where 7.39% may or may not remain in the following regulatory periods and, consequently, exhaust all available national remedies, at the light of these new developments.
We sincerely hope that the Secretary of State rectifies and everything comes back together at its place, in a moment of growing activity in the sector, and in which the only thing desired is regulatory stability. We are already missing the dyas of just having a lame duck caretaker Government, which could not betray the legitimate expectations every now and then.
As usual, we remain at your service to comment the latest news.
Coming September 28, 2016 the Catalan Energy Efficiency Cluster (Clúster d’Eficiència Energètica de Catalunya) and Holtrop S.L.P. Transaction & Business Law will organize a debate on Photovoltaics, called “Spain: Government against Renewables” together with Fundación Renovables, Som Energia, ANPIER and the actor César Vea including the premiere of the documentary “El Camino del Sol” in Barcelona.
Place of celebration: Auditori Pompeu Fabra del COEIC – Vía Laietana, 39 – Barcelona from 18:00 a 20:30.To see the full programm of the event, please click on following pdf-document (in Spanish):
The programm of the conference is as follows:
Opening paper, 18:00-18:15
Janet Sanz Cid - "Ecología, Urbanismo y Movilidad" Townhall of Barcelona
Table 1: Renewables in Spain: past, present and future, 18:15-19:15
Moderator: Francesc Ribera, Clúster d’Eficiència Energètica de Catalunya
Why should we stand up for renewables?, Joan Herrera, Fundación Renovables
What has happened with renewables in Spain?, Pere Guerra, ANPIER
How is the actual situation?, Piet Holtrop, HOLTROP SLP Transaction & Business Law
What is the future of renewables in Spain?, Sara Gutiérrez, Som Energia
Table 2: Showing of the documentary “El Camino del Sol” (19:15-19:45) and debate (19:45-20:30)
Daniel Pérez, HOLTROP SLP Transaction & Business Law
César Vea, director “El Camino del Sol”
This article, written by Daniel Perez Rodriguez, partner of Holtrop S.L.P. Transaction & Business Law, was originally published in Spanish in "el Periódico de la Energía" on September 8th, 2016.
A history on renewables and bricks
Imagine, dear reader, that you own an empty house that needs reforming, and that I have been relocated in 2007 to work in your city for good. As your house is outdated, you agree to make significant necessary investments to condition the housing in exchange for a commitment on my part to stay in the house for the next 30 years, so that you can amortize your investment. We agree on a rental rate of 700 EUR per month, upgradeable annually according to the Consumer Price Index, which I will have to pay in the first 5 days of each month. And for added security, we notarize the contract and officially register it.
Well, imagine that after three years of living in your house and paying the agreed rent, at the end of 2010 I unilaterally decide that instead of 30 years I reduce the duration of the contract to 25. And a few days later, due to the fact that the housing prices have dropped and because of the economic crisis, I make the decision to only pay you the monthly instalments until September of each year, failing to pay the last three.
On top of that, in 2012, I decide I'll pay 7% less rent each month because the neighbours are very noisy, and therefore I have to buy earplugs to sleep. The following year I choose to set a fixed rental price, eliminating the updating of the rent according to the CPI. And I decide that instead of paying the full rental amount each month, I will pay you a percentage, paying you the rest when I collect the money from several creditors who still owe me.
In 2013, emboldened by the improvements in the contract that I'm achieving, I decide to change the way of calculating the rent according to a method I still have to establish, and in the meantime, I pay you on account. The following year, at last, I fix the method. I decide that I will pay you a variable amount, so that in this way, in the 25 years of rental duration you get a reasonable return, which will be determined by the profitability the banks will give me for a bank deposit of 10 years. That return will be calculated taking investment costs of housing and maintenance costs into account. Not your actual costs, but some estimated costs, assuming you were a "model house owner". And of course, to establish how much the house costed, I cannot consider what you paid, but rather the cost for the builder of the entire complex, i.e., the "housing complex", to situate the houses at a distance of less than 500 meters apart from one another. In your costs I will neither consider autonomous nor local taxes, and from your income I will subtract the aid for housing rehabilitation you received when you did the construction. Of course, I will also subtract all I have paid these years when it comes to the calculation of what I still owe you, but in a manner that the profitability you get seems reasonable to me. Oh, and every six years I will update the rent I pay you. That's it for now.
I almost forgot: If you decide to finalize the rental agreement and you wish to come and "self-consume" your house, you will have to ask permission to the local real estate agency, which may take several months, and you will have to pay me a fee, as a compensation to the rest of the owners who cannot rent their house to you, because you already live in yours. And it is strictly forbidden to share the "self-consumption" of your home with others, because the damage for other landlords would be even greater.
P.S. This story is based on real facts. Not in the real estate sector, of course, where it is inconceivable that something like this could happen. As soon as the tenant goes too far, he will be evicted and problem solved. These events have happened in the renewables sector. Just substitute the author of these lines by the Ministry of Industry of the Kingdom of Spain and the patient reader by a renewable energy producer.
Unfortunately, to make the whole story worse, it is not only that there is a Ministry or a person acting this way, as in the case of the story that has been told. What is really dramatic is that those responsible for interpreting the rules, i.e., the Courts, have decided that the behaviour of the Ministry is in compliance with the Law and that renewable energy producers have the obligation to support all these unilateral changes that I have been describing, or those that may be imposed in the future, so as that the Ministry can declare that the return obtained by renewables producers is "reasonable".
This article was originally published in Spanish in the "Panorama" section of www.energias-renovables.com on 6th September 2016. Piet Holtrop, founding partner of Holtrop S.L.P. Transaction & Business Law, collaborates from time to time with the magazine and also has a blog in this publication.
In case you are interested in reading the Spanish version please click here.
This summer I had some more time than usual to spend on reading since the courts of administrative litigation in Spain are not operational in August. It has been refreshing to read the ideas of Epictetus, Marcus Aurelius and Seneca compared to our reading of what usually comes from the courts. These philosophers seek purity in reasoning and coherence in thought, which should really also be found in court judgments. Especially when it comes to the highest ones in our country.
Supreme Court ruling on RD413 / 2014 and OM IET / 1045/2014
The ruling before summer on the regulatory absurdity of former minister Soria is a great example of inconsistency by definition. There is inconsistency in the fact that the votation has not been unanimous but it is pretended to make it look like there is no reasonable doubt about the interpretation of European law within the meaning of the Treaty on the Functioning of the EU (TFEU) 267. But it is obvious: when all court members do not interprete the law the same way, there clearly is a reasonable doubt on that very interpretation. You can not pretend you are interpreting national law, subject to the same legal concepts as European law, in particular the concept of legitimate expectations this way.
In this case European law should be applied, and although the concepts are very similar in both national and European law, and therefore interpreting national law seems to be the right way, it is not. This obviously is not only contrary to the TFEU, but also to the Spanish Constitution (SP) itself, specifically its Article 24. According to the EC a judge can not usurp another one's competences, in this case the Court of Justice of the European Union .
The Constitutional Court will not have to do the work of the Supreme Court all over again, but will have to rule about the lack of reference for a preliminary ruling. We are lucky that the constitutional question is this one, with all the constitutional and doctrinal relevance involved. If it would have been the other way the Constitutional Court would propably not even admit it, since it does not rule on matters that are a mere infringement of the constitutional rights of Spanish citizens. This is very sad for the citizen, but things are constitutionally in Spain the way they are. The only availabe option is to go to the Court of Human Rights in Strasbourg in case of a not intellectually challenging constitutional matter.
César Vea in Brussels
Speaking of citizens with not appetizing enough problems for our Constitutional Court, I have to mention our friend and client César Vea here, who will be just today (September 6th, 2016) and tomorrow at the European Parliament in Brussels together with our partner Daniel Pérez to discuss the problem he cries out to heaven. Not only has he be punished in the same way as all the other photovoltaic producers, but also has he been taken out of the whole of the tariff system with arguments that have not been applied to all other producers. We are taking his defence to Strasbourg in order to seek the annulment of this nonsense. César Vea is now working on a film about the ordeal he is suffering, following his short film on the photovoltaic debacle.
Another faultless one to Washington
Another ordeal for political hygiene and decency in our country consists in sending quoted former industry minister Soria to the World Bank. This is an ordeal for the separation of powers because it is clearly focused on trying to extinguish the fire of the international arbitrations against Spain, which depends on the entity where former minister Soria ends up.
This is indecent, not only because according to the rules of the World Bank only persons of impeccable reputation may be proposed for working there, but also because, apart from not being it now, they send him on purpose to demonstrate his "impeccable reputation" over there. And to make matters worse, it's starting to be a habit sending dirty money people over there. In the case of Soria it's probably double dirty money, metaphorically for tax evasion and literally for proceeding the money from dirty sources in terms of energy.
From Madrid to Luxembourg
I have strayed a bit from my initial issue: consistency in thought and purity in reasoning. I consider myself a stoic person, just like the philosophers I mention in the introduction of this article and I will serenely insist to achieve a just sentence by using all the legal weapons at my disposal. I'm more motivated and more convinced than ever about the fact that the Court of Justice of the European Union will interpret European law as I have always maintained. Each time more people share my thinking and now I am sharing it at least materially together with three judges of the Supreme Court of Spain. This is quite someting.
Coincidentally the same evening after the publication of this article we learned that former minister Soria had withdrawn his candidature at the World Bank.
Today we learned that the Supreme Court has raised a question of unconstitutionality to the Constitutional Court regarding the payment of the "Impuesto sobre el Valor de la Producción de Energía Eléctrica" (Tax about the Value of Electricity Production), which applies a 7% rate to the obtained income from the sale of electricity by the producers of it, whether renewable or fossil energy.
The Supreme Court questions the environmental purpose of the tax and considers that in reality it is a pure collection tax. Therefore it decides to ask the TC, who has already dismissed some appeals of unconstitutionality, such as the one from Andalusia, although the legal arguments in that case were different (Article 9.3 of the Constitution, whereas now 31.1 is being invoked).
Now the ball is in the court of the Constitutional Court, who has to decide on the validity of the tax in a ruling that could have unpredictable consequences, since it is not at all clear, in case the tax money has to be paid back, how to perform such devolution. All we know is that whoever does not recur in the four years following to the settlement, will lose the right to recover the amounts paid in that annuity and that likely compensation to the plants will be reduced in case this tax should no longer be paid, since right now it is being computed as an operation cost. However, if the settlements are closed, theoretically they can not be opened.
In short, it is a development that we value positively, as we have always defended the illegality of the 7% tax, and which once again proves that the problem of the tariff deficit is not solved in a proper way. It remains to see what the TC decides and, in case of cancellation, how the decision applies.
- Royal Decree Law 14/2010 brings radical feed in tariff cut for PV
- A closer look at retroactivity in Spanish Law
- RDL14/2010 infringes Directive 2009/28/EC
- The increasingly inaccurately called electricity sector reform: one step closer to abyss
- Will RD1565/2010 cause a shakeout in the Spanish PV sector?
- ¡BREAKING NEWS! From a caretaker government to an undertaker government: new cutbacks to renewables?
- One hundred trillion dollars
- September 28th 2016, debate on "Spain: Government against Renewables" with the actor César Vea
- September 28th 2016, debate on "Spain: Government against Renewables" with the actor César Vea
- September 27th, 2016, Cicle Tècnic d’Energia a la Indústria: "Energies renovables aplicades a la indústria"