The Spanish PPAs and the reduction in remuneration under the RDL 17/2021 – pv magazine International
The measures were adopted by decree and after only a few days were concretized by an additional explanation (aclaración) (Real Decreto-ley 17/2021 of 14.09.21, together with the ministerial announcement “Respuesta al operador del sistema sobre la aplicación del RDL 17/21 ”from the Ministry of the Environment of 21.09.21).
On the one hand, the RDL 17/2021 package of measures includes tax advantages and, on the other hand, a reduction in remuneration (“clawback”) until the end of March 2022, which must be paid to the Spanish TSO by the owner of renewable energy plants.
Overall, the economic losses from the reduction outweigh the positive effects of the tax break, so that in extreme circumstances, project owners could be forced to close factories in individual cases to limit losses incurred.
Personal scope of RDL 17/2021
The temporary reduction particularly affects owners of renewable energy plants with a capacity greater than 10 MW, whose volumes of energy produced are traded on the spot market and thus, with other types of plants, benefit “extraordinarily” of the current sharp rise in electricity prices.
Thus, it is assumed for regulatory purposes that the turnover to be reduced has “internalized” or “indexed”, in a way, the increase caused mainly by the price of gas (as one of the main factors in the formation of gas). price of electricity).
Thus, investments for which the proceeds of the sale are not “indexed” in whole or in part are excluded from the reduction.
This primarily concerns renewable energy installations which have concluded physical and bilateral electricity supply contracts (physical PPAs) at fixed prices, provided that these PPAs have not been concluded between affiliated companies and before the 16th September 2021.
Secondly, “financial PPAs” are also exempt from the reduction, provided that they were concluded in whole or in part with non-indexed hedging transactions (hedging) during the period of validity of RDL 17/2021, not with related companies and before September 16. , 2021.
This therefore applies to financial PPAs with a mixed pricing mechanism (e.g. cap-floor pricing) and to financial PPAs relating to several assets of an owner (asset pool), but only with regard to the part of the income that is priced at a fixed price. and non-indexed base. The unsecured “net income share” is then subject to a pro rata reduction.
Finally, renewable energy installations which benefit either from a special feed-in tariff subsidized by the State or from a remuneration scheme based on calls for tenders are also exempt from the reduction.
With respect to these aforementioned exemptions, the exact details have yet to be finalized. It is not unlikely that RDL 17/2021 will be amended in the coming weeks until it is confirmed or repealed by Parliament.
In particular, setting the deadline for PPAs as a condition for exemption from reduction (PPA conclusion before September 16, 2021) is strongly debated and attacked in the market. This regulation is in direct contradiction with the idea of the government to intensively promote the use of long-term electricity supply contracts also in the future.
In all cases, however, the plant owners concerned are required to assess the economic impact of RDL 17/2021 in terms of contractually responsible management in legal terms, either because they already manage applicable PPAs in their portfolio, or because they are about to enter into an APA.
From the point of view of contract law, the effects of recovery according to RDL 17/2021 should be considered as events which could, in extreme cases, open the possibility for the owner of the renewable energy plant and the party contracting party to a PPA to adjust the contract. In the following, this particular case will be briefly described and finally summarized in the form of concise practical advice:
- a) Applicable law
First of all, when examining contractual clauses, it is necessary to clarify which law is applicable to the contract for the supply of electricity. Even though contractual adjustments are regularly regulated in detail in the PPA, these clauses still apply only in the context and on the basis of the contract law chosen by the contracting parties. On PPAs with reference to Spain, this usually means the application of Spanish law. However, foreign legal systems must also be taken into account, provided that a corresponding choice of law has been made.
- b) Difficulties / Change of law in Spanish law
Hardship ”refers to events which make the performance obligations of the parties agreed in the contract more difficult than what is tolerable to the detriment of a single party to the contract, but not impossible. They thus constitute an exception to the principle of the obligation to perform the contract (“pacta sunt servanda”). They apply regularly if the contractual situation initially observed by the contracting parties outside the sphere of responsibility of the parties involved unforeseen and serious changes such that compliance with the contract would result in undue hardship for one of the parties to the contract. .
While in German law, for example, the exception to the general performance obligation described above is now explicitly governed by § 313 BGB (“Störung der Geschäftsgrundlage”), there is no statutory regulation correspondent in Spain. As an unwritten principle of a “change in the contractual situation” (“rebus sic stantibus”), the exception is nevertheless recognized in Spanish doctrine and case law. Local case law on the application of hardship clauses was last consolidated in the context of the global financial crisis to resolve extreme distortions of contractual symmetry. As in German law, this is based on the hypothetical will of the contracting parties at the time of the conclusion of the contract and thus also defines the specific standard of reasonableness in each case.
With regard to a contract for the supply of electricity in Spain, regularly agreed so-called “change of law” clauses must be qualified as a sub-category of a hardship clause. They are also based on unforeseen events outside the risk sphere of the contracting parties, which may arise in particular as a result of legal interventions, such as regulatory changes.
The reduction in remuneration due to RDL 17/2021 therefore meets the requirements of a hardship clause in any case on the merits. The decisive factor then is that the economic burdens and effects that the reduction in tariffs means for an installation in a specific case exceed the threshold of unreasonableness. As each factory has different initial economic parameters, the particularities of each factory must be taken into account. Regarding the type of PPA, for example, the contracts for securing the financing of factories (upstream PPA), with their specific banking requirements, should be differentiated according to their financial structure.
For the future, the RDL, which has now entered into force, means in particular a shift in the “requirement of unpredictability” for the application of the “change of law” clause. This should be taken into account in particular when reformulating PPAs.
While the reduction in compensation under RDL 17/2021 will result in significant losses for most renewable power plants, only a few are likely to exceed the unreasonable threshold of a typical hardship clause in a PPA. .
The main objective is to adjust the contract before it is terminated. In this regard, it is for the court (Spanish) to adapt the contract at its own discretion. Those who have entered into an arbitration agreement in the interim power supply contract may consider themselves lucky, as this allows the parties to themselves select the appropriate arbitrators taking into account the judicial discretion to be exercised.
The significantly shorter duration of arbitration proceedings compared to state court proceedings of several years is also an advantage which should not be underestimated in the case of disputes over electricity tariffs. In the context of the latest decisions of the Court of Justice of the EU, the competent arbitral tribunals must ensure that this adjustment is proportionate and in any event within the limits of competition law.
For existing PPAs with indexed price clauses
Review existing contracts and assess their economic impact. If your PPA is affected by the recovery to such an extent that you would be economically compelled to (temporarily) shut down the plant, notify your contractual partners as well as investors and financial institutions in advance of this. possible step. In the event that the co-contracting party is considering legal action in the event of closure, try to find an amicable solution to the conflict upstream, ideally within the framework of commercial mediation (ADR). If this does not succeed, there remains the possibility of an adjustment of the contract by the (arbitral) court seised.
For PPAs to be negotiated
Use suitable hardship clauses, adapting them to your specific contractual situation and the chosen law, and in particular by providing for cases of contract regularization by court or by expert. Appropriate clauses can be found on the CCI website. Note that the now promulgated RDL has now moved the requirements relating to the unpredictability of state pay cuts.
The views and opinions expressed in this article are those of the author and do not necessarily reflect those of pv magazine.
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