The Government of Spain, through Order TED/1193/2024 published in the Official State Bulletin, sets guidelines for the National Commission on Markets and Competition (CNMC) to review the methodology for calculating the Financial Return Rate (TRF), which is crucial for investments in energy transmission and distribution networks.

These modifications aim to encourage the deployment of the necessary infrastructure to meet the growing demand for renewable energy and industrial electrification in line with energy transition goals.

“In essence, the approval of these guidelines means that the CNMC must ensure that the calculation methodology is consistent with current European regulations and responds adequately to the needs of the Spanish energy market,” says energy lawyer Ignacio Sanglar, in an interview with Energía Estratégica España.

The main measure established in the order involves evaluating a modification of the calculation methodologies for both risk-free return and debt costs.

This change aims to mitigate the effect of exceptional economic events from 2018 to 2023 on defining profitability for the next regulatory period, projected from 2026 to 2031.

The document emphasizes that this approach “seeks to soften the impact of past events on risk-free profitability and debt costs,” with the goal of promoting a return that drives energy transmission and distribution activities, which are essential for industrial electrification, the expansion of electric mobility, and the integration of new energy vectors.

From this perspective, the importance of establishing appropriate signals to encourage investment in electrical grids is highlighted.

Various sector sources have repeatedly emphasized to Energía Estratégica España that digitalization is a key factor in integrating new system actors, especially in terms of energy demand.

It is important to note that Eurelectric, the European association of the electricity sector, in its latest study, indicated that approximately 16% of investments by Distribution System Operators (DSOs) should be allocated to digitalization by 2030.

While Circular 6/2019 already recognized the importance of such investments, including automation and digitalization pilot projects, electricity companies are calling for greater ambition in the regulatory framework and requesting that the types of investments required be specified.

The aim is for the networks to be prepared to meet future clean energy demand while facilitating the integration of large-scale renewable generation.

According to the order, the Government considers it essential for the methodology to review the current foundations to allow for a TRF that avoids bottlenecks in infrastructure and promotes the growth of a sustainable energy system.

A Balanced Framework for Consumers and Developers

Order TED/1193/2024 emphasizes that, in addition to fostering the growth of energy transmission and distribution networks, the design of the remuneration should consider cost containment for consumers.

The text clarifies that the value of the TRF must “balance” the need for investment with the impact on the final price faced by consumers. This responds to concerns that the costs of the energy transition should not harm end users, maintaining a competitive and accessible price signal for electrification.

In terms of sustainability, the order establishes that the remuneration framework will not incentivize new infrastructure related to fossil fuels.

Instead, the TRF applicable to transmission and distribution assets will be aimed at favoring investment in efficient, cost-effective, and environmentally beneficial infrastructure, in line with Spain’s and the European Union’s commitments to reduce greenhouse gas emissions