BY: CHRISTIAN STEINER, BORES Y CIA ABOGADOS

In times of global warming, cutting carbon is becoming increasingly trendy. Investors, however, rely less on trends than on business prospects. Unlike atomic energy, which is arguably CO2-wise equally effective to reduce global warming emissions, the renewable energies are seen as less dependent on but not immune from political moods. Despite notable technological progress, revenues from renewable energy still depend on governmental support schemes, which vary in type (quota and trade; tax credits; feed-in tariffs), and generosity.

There was great relief amidst the wind power companies around the globe when the Spanish feed-in tariff review, effective as of 1 June 2007, by virtue of the Royal Decree 661/2007 regulating the production of electricity in the special regime, despite initial concerns, turned out to be supportive of the wind energy industry in Spain. According to Royal Decree on the revised tariff schemes for renewable energy and cogeneration projects, the fixed tariff and market tariff options remain and a concessional transition period of 5 years applies to operating wind farms.

Photovoltaic energy production experienced few modifications, although the significant reduction of the margin between the feed-in tariff for plants below and those above 100 kW now makes investors think twice about whether the artificial subdivision into small 100 kW of what was really one large plant –a practice wide-spread in Andalusia and tolerated so far by the authorities – is still worth the administrative hassle and cost.

But the special regime now reviewed through Royal Decree 661/2007 is applicable not only to wind and solar energy but to all electricity production facilities that use renewable energies as their source. In order to conciliate part of the strongly-voiced concerns of some of the key renewable energy market players who feared significant profit reductions through the retroactive application of the Decree, the new regulation provides for a transitory regime for some facilities depending on their energy source, definitive date of commencement of service and other factors.

The compensatory regime is similar to the one established under the previous Royal Decree 436/2004. Producers may choose, for periods of no less than one year, to either feed their electricity into the system receiving a regulated tariff unique to each programme period or to sell their energy directly on the electricity market for the trading price or a freely negotiated price plus, as the case may be, a premium.

The Spanish energy market, one of the leading markets of green electricity, continues to be driven by the need to reduce carbon emissions in the European Union court, as well as the desire to improve security of energy supply and increase cost competitiveness. What makes this market especially interesting for investors in solar energy is the extraordinary situation of Spain, and especially southern Spain. While there may be even more sun shining further south, in Africa, that is not where the energy is needed, nor are prices subsidised; and efficient energy transport and/or storage technology is still a challenge to industry. Southern Spain couples the three essentials: Heaps of sunshine, energy demand, and feed-in tariffs.

For further information, please contact us at Bores y Cia Abogados, Christian Steiner, Rechtsanwalt.

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