Grid connection in Spain: “user pays”?

How much does it cost to apply to Red Eléctrica de España (REE) for permission to construct a greenfield renewable energy plant in Spain? The surprising answer is: €0, if your application is successful. The answer is not so simple – or cheap – if your application fails.

In Spain, as in other countries, the application process for connecting renewable energy projects to the grid is long, expensive and complicated. A key part of this process is applying for grid access to either the distribution or transportation grid. In this article, we discuss some of the peculiarities of the application process to the transportation grid[1], specifically the costs associated with applying for approval from the grid owner, REE. Recently we have noticed that one aspect in particular of renewables projects is acting as a source of uncertainty for our international clients: the Spanish law requirement to deposit a financial guarantee in order to begin the application process for greenfield developments.

Note that there are many other administrative steps – and costs – associated with a grid connection application, some of which we will consider in later articles.

 Under Spanish legislation, all new renewable energy generation projects must deposit a bank guarantee of €10/kW using the plant’s peak, installed capacity for purposes of calculation (note that for smaller installations this amount may be modified or waived; see for example the final first disposition of RD 1966/2011). For example, for a 100MW project, the amount of the guarantee will be €1.000.000 euros (see Articles 59bis and 66bis of RD 1955/2000). This guarantee will remain in place until the plant receives its final administrative authorization to commence injecting energy into the grid. If the applicant desists in the application process, the guarantee will be executed and, in most cases, the applicant will forfeit the entire sum. If the application becomes impossible to complete for reasons that are outside of the applicant’s control then, prima facie, the guarantee is returned to the applicant.

The rationale behind requiring applicants to place this guarantee is simple: the Spanish authorities don’t want to waste their time with applications for plants that are never likely to be constructed. By requiring applicants to put down considerable sums of money prior to commencing the applications – with the very real prospect that this money will not be returned if the project goes badly – only serious players enter the market.

This situation raises at least two interesting questions. Firstly, assuming the application is successful and the guarantee is cancelled, the effective application fee is €0. How then do the authorities recover their costs? Secondly, is it fair or reasonable to require an entity that voluntarily desists with the application to forfeit the entirety of the guarantee?

We explore the answers to these questions – and more – in our upcoming series of articles relating to the grid connection process.