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The Conversation Spain

Will fossil fuels be the new financers for renewables premiums?

The combination of the fall in electricity demand and the depressing effect of renewable energies on the prices of the electricity market has produced, as a consequence of the COVID-19 crisis, a reduction in the income of the electricity system. This trend suggests a deficit situation, due to the mismatch between the income and costs of the system. In response to this situation, the Council of Ministers of the Government of Spain has agreed to initiate the processing of a preliminary draft of the Law. a National Fund for the Sustainability of the Electricity System (FNSSE), the main objective of which is to establish a new system for the distribution of regulated costs for the financing of premiums for renewable installations put into operation before 2012. In this model, the financial contribution to the premiums for renewable energies (additional money they receive from the sale of energy), cogeneration and waste will be distributed among operators of all energy sectors and not only electricity ones. In this way, the operators of products derived from fossil fuels (oil and gas companies) will become new and important financiers of this additional remuneration for renewable installations and cogeneration. The FNSSE will also be nourished by the collection from the taxes regulated in Law 15/2012 and from the income from CO₂ auctions. Avoid increases in the electricity bill The draft bill, which has already been made public, pursues the objective of preventing the financing of a regulated cost of around 7 billion euros per year from falling exclusively on electricity consumers. This would entail undesirable increases in the charges of the electricity bill, with special incidence in domestic consumers. According to data from the Ministry for the Ecological Transition and the Demographic Challenge, this cost represents for them around 16% of the electricity bill. However, if the processing times of the regulation are taken into account, to achieve this in the short term goal is difficult. In addition, the preliminary draft provides for a gradual implementation of the new financing mechanism in the 5 years after the entry into force of the future Law. Until then, the part of the special remuneration scheme for renewables and cogeneration not covered with contributions from the FNSSE it will continue to be financed with the charges applied to the electricity bill. Therefore, optimism regarding the immediate reduction of the electricity bill must be modulated with caution. A change demanded for years In the explanatory memorandum of the preliminary draft, some of the sectoral studies are collected. For years, the need to carry out an in-depth reform of network access tolls had been emphasized, the documents highlighting that the electricity bill in Spain was artificially expensive due to energy policy decisions unrelated to the current supply (singularly, for the additional remuneration of renewables). Reforms were called for in the configuration of tolls and electricity charges that would allow the transmission of adequate price signals to consumers for the use of resources supplied by the electricity system. The reform that is now being announced follows this line. Losers and winners with the Law Some press headlines have interpreted the normative proposal in terms of winners and losers, due to the fact that the operators of petroleum products remained so far oblivious to financing a cost that fell on electricity consumers. Likewise, the first calculations of these operators indicate that some of the main companies in this sector will end up being the major funders of the new distribution in the contribution to this cost.However, despite the exemptions and bonuses scheme contemplated, everything seems to indicate that the redistribution will end up being assumed by the final consumers, specifically by those who make use of diesel, gasoline or natural gas. Consequently, the financing of this cost of the electricity system is extended to other energy consumers who, on many occasions, will coincide. A first (big) step in a necessary reform The announced preliminary project is the starting point of a necessary reform of the design of access tolls and the costs of the electricity system. The ongoing energy transition requires reforms that find continuity in other changes in the components of the electricity bill. This will make it possible to face challenges such as the digitalization of electricity grids, the drop in variable income caused by distributed generation and self-consumption, as well as full alignment with energy and environmental taxation, the reform of which includes the Recovery, Transformation and Resilience Plan. The distribution of the costs of the transition to an electrified and sustainable economy In these issues it is necessary to ask the question of why consumers of electricity should pay for the transition and not those of all energy products that should be replaced by new and non-polluting sources of energy. Likewise, the costs transferred to electricity consumers must be analyzed: the most important are the guaranteed prices to the owners of photovoltaic, wind and other installations, as a result of poorly designed incentive schemes that have been very expensive. In addition, compensation to cogenerators has no environmental basis and there is disguised aid to industry. This reality does not justify that the expenses have to be paid by one or the other consumers. In the end, they are costs of the transition to a sustainable model that should be shared among the consumers of the energies that must be replaced by others from sustainable sources.This article was originally published in The Conversation. Read the original.Marta Villar Ezcurra has received funds from the European Commission on energy, taxation and state aid.Jorge Galán Sosa works and owns shares in Ariño y Villar, Abogados SLP

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