New electricity reform aims to eliminate tariff deficit by attacking renewables once again

The fifth and last reform of the Spanish electricity sector has been presented today in a press conference of the Council of Ministers.

It was in some way foreseeable that the new Royal Decree Law presented today could contain strong cutbacks to renewables energies and photovoltaic in particular.  As the Spanish press highlighted in the last few days, for example Cinco Dias or el Mundo, the reform was going to be developed mainly with the aim to reduce the tariff deficit.

According to the Vicepresident of the Spanish Government and official speaker of the Council of Ministers, Soraya Saenz de Santamaria, the reform that has been approved will finally solve the problem of the tariff deficit and will be the last one, which means that no other reform will be necessary (anyway she added that eight Royal Decrees may be necessary in order to implement this reform).

Then the Vicepresident implied that the previous legislative changes have affected mainly energy consumers while costs of the new reform will mainly affect the State budget and energy undertakings.  In other words they pretend once more to be defending the consumers while in reality they are annihilating renewables in a blind effort to save money in the short term.

The Minister of Industry, Jose Manuel Soria, was the second to speak after the vicepresident and presented to the audience a series of slides showing the increase of the tariff deficit from 2003 as well as the growth of the fixed costs of the electricity system.

If no measure will be taken in 2013 this deficit would be around 4,500 million, implying an increase of the electricity bill of 19%, a bill that have already increased around 68% from 2003.

Therefore in order to cancel the  4,500 millions deficit, only 900 millions Euros will be charged to the electricity consumers, resulting in an increase of 3,2%, of the electricity prices while other 900 millions will come from the State budget and an outstanding 2700 millions will be the result of the new (retroactive) cutbacks to the ordinary and special regime.

It remains unclear the dimension of the cutbacks that will affect each technology but the Minister already declared that all renewables will receive now a retribution based on its investment costs that will include a reasonable return based on the Spanish state  bond interest rate + 300 basic points (total 7,5%).

Minister Soria argued that these cuts are not contrary to Spanish law and based his arguments on the doctrine of the reasonable profitability of investments recently established by the Spanish Supreme Court ad hoc for the investments in the electricity sector. 

As we already explained in previous blog entries we consider this doctrine of the Supreme Court not to be consistent with European Union Law and in particular with the principle of legitimate expectations. Indeed in our opinion what is going on in Spain should be viewed as creeping expropiation.