The increasingly inaccurately called electricity sector reform: one step closer to abyss
On internal working documents in our Firm we refer to it as the fifth or the sixth reform, it’s hard to keep count and difficult to distinguish which is reform and which is not. Each plan or reform over the past three years has been presented as the definite solution to the problems of the sector, while these problems have worsened each time afterwards. Renewable Energy as a participant in the electricity system in Spain has been the culprit of all awes of the sector, yet after each severe punishment things only got worse. The Spanish government does seem to be able to pick the right cause for all the trouble related to the tariff deficit in the sector. Then again, if it does so time and time again with the end in sight for all small and medium sized enterprises, private direct investors and self-consumers in this sector it seem that exactly that is the underlying goal. In that context may in Spain say that the secret agenda of the agenda bears the name UNESA. UNESA is the name under which the five dominant players in the Spanish Energy sector organize their lobby to influence the public opinion and the legislator. As soon as the latter has achieved to relegate the earlier from their sector the work of the Spanish government is done.
Both the Spanish Energy regulator and the competition authority consider the drafts of the Spanish Government for the implementation of this fifth energy reform in less than three year beyond reason and legality. Especially the plan to levy heavy grid access fees to energy which has never accessed the grid is considered to be discriminative and anti-competitive by these regulators. The government has indicated that it doesn’t care much about these opinions, a position which is understandable if you bear in mind that these regulators as soon to disappear to make way for one unified regulator, with their most relevant powers transferred to the Spanish ministry of industry.
The Spanish government is applying extremely interventionist policies, and has little to fear from its internal control mechanisms, with an absolute majority in Spanish parliament and its independent regulators already in anesthesia for their life ending surgery.
The civil society in Spain is exasperated, UNEF, ANPIER, APPA and PROTERMOSOLAR have tagged this reform as a creeping expropriation. The Platform for a New Energy Model has labelled it another attack to a clean energy model and another step towards complete dismantling of Spain’s renewable energy sector. The Renewable Energy Foundation marks this reform as an involution project. This foundation also refers to the need to file complaints before the European Commission regarding the infringements of the renewable energy directive and electricity market directive. In his sense there is a lot of cooperation between all organizations mentioned in this paragraph and these complaints are currently being drafted in our Firm, coordinating between all aforementioned organizations.
The pivotal issue here is discrimination emanating from rigid and interventionist retroactive modelling of business models of participants in the electricity system. The basic idea is that the government has designed a system of payback for investment, instead of the earlier system of feed in tariff for production. It thus expels efficiency and market mechanisms from the operational model of the electricity sector to control who gets what. A good analysis of the modus operandi has been given in a recent article in the mayor national newspaper, signed by a former president of the Grid Operator (11 years) and later the Energy Regulator (6 years), Mr. Jorge Fabra Utray. He also points out that the rationale of it all is more ideological than economical. It is a matter of business or industry control.
The European Commission has expressed its worries about this reform, and has also taken several steps regarding earlier complaints presented before it. We have spoken to Mr. Oettinger and most members of his team, as well as to Mr. Olli Rehn’s team. They are having difficulty to do the splits between balancing the economic recovery of Spain, and doing so avoiding new risks and yet respect all EU Law. The Spanish Government seems to put them in a very uneasy position.
In the meantime the situation before national courts is becoming unsustainable: the Spanish advocacy of State is doing everything in and outside its power to avoid massive litigation to reach the Court of Justice of the European Union in Luxembourg. Only our firm has filed close to ten different law suits for different collectives of Renewable Energy producers, organizing them in “class action” style cases of over 1200 participants, including separate cases for APPA and The Platform for a New Energy Model.
It is inevitable that these actions eventually will reach Luxembourg, and the position of the Spanish state to defend non violation of the legal certainty principle as defined in EU Law worsens with every new reform of its government. The problem to defend this is seeded in the structural flaws of the sequel reform: they discriminate because of the methodology used, and that cannot be corrected in court. In this context I do not envy Roland Berger and the Boston Consulting Group; these consultancies have been designated to work out the details of the earlier mentions investment return model type projects, to which the participants in the sector will be docketed. Their engagement includes the defense of the models which they have not designed in court.
The indirect engagement of these consultancies by the IDAE, the official government agency that had promoted private investment with a guaranteed incentive scheme promising double digit returns has aroused loud critique in Spain. It is argued that we should simply take the prospectus published by this IDAE at the time the investments in the affected renewable energy plants were made. It is also a doubtful development that the government is governing by proxy through large international consultancies with taxpayer’s money in the current economic situation, when it has the IDAE for that.
The Renewable Energy foundation has pointed out that only recent price fluctuations in fossil fuel resources have already evaporated the effect of this last reform. If no sensible and structural reform is undertaken that includes the Spanish Electricity wholesale market the so called tariff deficit will only worsen next year. The tariff deficit is a regulatory deficit created in 2002 by the then PP industry minister Rodrigo Rato and has never been properly solved. It has generated huge windfall profit to the large utilities, added to the earlier created windfall profits in the wholesale system for large hydro and nuclear power.
When talking about Mr. Rato what also comes to mind is the complaint we have filed as the attorneys of The Platform for a New Energy Model before the Spanish public prosecutor for corruption in relation to €3.3Bn (yes, 11 zeros) which the current government forgot to claim back form the UNESA utilities for the so called CTC’s. These costs for transition to competition were no costs but a surplus and have not been returned to the consumer nor the tax payer.