As a result of the need to clarify the measures set out in Royal Decree-Law 17/2021 of 14 September, on urgent measures to mitigate the impact of the escalation of natural gas prices in the retail gas and electricity markets (the “RDL 17/2021“), which entered into force on 16 September, the Government has approved Royal Decree-Law 23/2021 of 26 October on urgent energy measures for the protection of consumers and the introduction of transparency in the wholesale and retail electricity and natural gas markets (the “RDL 23/2021”), which aims to clarify, among others, the measures on the application of the mechanism to reduce the excess remuneration of the electricity market, caused by the high price of natural gas on international markets.

Regarding the above, an eighth additional provision is introduced in RDL 17/2021 on the application of the aforementioned reduction mechanism, stating that:

  1. The reduction shall be calculated in proportion to the energy produced by the facilities affected by the reduction mechanism (regardless of the type of contract), and in an amount equally proportional to the greater income obtained by the aforementioned facilities due to the incorporation into the electricity prices on the wholesale market of the value of the price of natural gas by the marginal emitting technologies, in accordance with the provisions of article 4 of RDL 17/2021.
  2. Notwithstanding, it is determined that the reduction mechanism will not be applicable – in addition to what is already established in RDL 17/2021 (i.e. facilities that have a recognised remuneration framework and facilities with net power equal to or less than 10 MW) – to the energy produced by electricity generation facilities that is covered by a forward contracting instrument, provided that the hedging price is fixed and was entered into prior to the entry into force of RD-Law 17/2021 or when, having been entered into force after such date, its hedging period is greater than one year.

On the other hand, it is noted that if the forward contracting instruments incorporate a partial indexation to market prices, only the energy equivalent to the non-indexed part of the energy will be excluded.

  1. Additionally, it establishes the elements to evidence the existence of these forward contracts, which shall be submitted by the owners of the facilities, in order to prove the possible exclusion from the reduction mechanisms, and which would be:
    • Responsible declaration signed by the CEO or position of similar responsibility of the company or business group, which must include, at least, (i) the monthly energy subject to the forward contracting instrument, (ii) the date of conclusion of said instruments, (iii) as well as the volume, price and delivery or settlement period of the energy negotiated and committed in fixed price contracting, with physical delivery or with financial settlement previously declared. In this regard, RDL 23/2021 includes as Annex II a model of responsible declaration. In relation to the above, it should be noted that the aforementioned declaration should be sent to the system operator on a monthly basis within 5 working days after the end of each month in which the reduction instrument is applicable.
    • Information evidencing the contracting of said energy with a third party, or through a market or intermediary agency.
    • Information evidencing the notification of these operations to the corresponding body under the applicable regulations, justifying, where appropriate, the absence of such evidence.
    • Any other documentation that may be necessary to evidence what is stated in the previous sections, as well as to guarantee the veracity of the content of the information.

Both the responsible declaration and the aforementioned information shall be sent by the owners of the facilities to the system operator, who shall send it to the National Markets and Competition Commission (CNMC) for its verification.

ITER Law Team