Spain needs a model that allows for the development of robust electricity grids to meet demand, which in turn drives the decarbonization of the economy and a strong industry. Therefore, although the CNMC’s new remuneration methodology proposal incorporates improvements, aelēc regrets that it maintains structural problems from the previous proposal. Although certain specific advances are appreciated, the overall approach remains out of step with the country’s electrification goals.
According to the CNMC’s proposal, compliance with the recently proposed Royal Decree raising the investment limit for distribution companies and the network expansion necessary for industry, housing, and electric mobility could be jeopardized in Spain.
Aelevate valor:
- That the CNMC has submitted its proposed methodology to a new public hearing, following the need to adequately consider the proposed Royal Decree on investment limits.
- That key investments that had been included in the Royal Decree for increased investments proposed by the Ministry be partially recognized, such as those associated with digitalization, grid stability, bird protection, and anticipated investments without new capacity.
- That the value of the parameters used for investment recognition be calculated in a more transparent and simplified manner.
Despite these advances, the model slows down the investments necessary to reach the level of electrification required by demand and establishes energy policy.
The proposed model does not allow for the implementation of investments essential to grid development and industrial electrification, even when these have been authorized by the Ministry in accordance with the proposed Royal Decree. While the Ministry considers investments based on new demand access requests viable, the CNMC’s proposal invalidates them solely on economic grounds. Specifically:
- The CNMC imposes a remuneration cap of €233/kW, equivalent to just 60% of the current average real connection cost, as found in the recent EY and IIT study on grid investments. This threshold prevents the connection of industrial zones, urban areas, new homes, and charging stations when costs exceed this figure, depriving these consumers of their effective right to electricity supply.
- Consistency is necessary to avoid regulatory uncertainty, as the proposed Royal Decree and the CNMC proposal address the same issue—infrastructure planning—but with contradictory criteria.
- For investments that do not increase demand, the Ministry establishes an investment limit, but the mechanism proposed by the CNMC only guarantees investment recovery for 80% of that limit.
- For investments to connect new demand, the Ministry establishes that an investment is viable if there are access requests for at least 75% of its capacity, but the CNMC invalidates it if its cost exceeds €233/kW.
- This lack of coherence generates uncertainty, paralyzes investments, and delays the energy transition.
- Under these conditions, compliance with the Royal Decree and the network expansion necessary for industry, housing, and electric mobility are compromised.
Disproportionate efficiency demands and unprecedented OPEX cuts
The CNMC proposes an excessive level of operational efficiency requirements, which eliminates the incentives for distribution companies to undertake the necessary investments.
The OPEX (operating expenses) cut is excessive compared to those applied to other regulated activities, both in Spain and the rest of Europe. This severe adjustment leads to negative margins at the end of the regulatory period. This situation could lead to a precarious supply chain, compromising the value chain, jobs, and service quality, precisely at a time when businesses and citizens are demanding greater guarantees.
Furthermore, the basic principles of legal certainty and regulatory predictability are being violated at a time when the country needs an unprecedented volume of investment.
Without investment recovery, the model is not viable
In its current configuration, the model does not guarantee the recovery of part of the investments made, which is incompatible with a stable and sustainable remuneration framework aligned with the need to transform the energy system.
It is urgent to review the financial remuneration rate (TRF)
Given the level of risk involved in this regulatory model—due to its stringent efficiency requirements, lack of investment recovery, and regulatory uncertainty—it is essential to adjust the financial remuneration rate to adequately reflect the new risk profile of the activity, an aspect regulated in a separate piece of legislation.
The CNMC’s proposed TRF (6.46%) is insufficient and must be revised upwards if we intend to attract and maintain investment in an activity that is key to the country’s energy transition, reindustrialization, and decarbonization. Specifically, certain parameters must be revised to align with those regulated for other sectors in Spain.
