Spain Power Reform to Cap Returns, Cut Capacity Payment: Factbox

Spanish Industry Minister Jose Manuel Soria announced a “definitive reform” to tackle the 4.5-billion-euro ($5.9 billion) electricity-tariff deficit forecast for this year through caps on investment returns for generators and lower capacity payments to gas-fired plants.

Following is a list of the main steps taken by the Cabinet today.

Changes Approved:

*Out of this year’s total deficit, 2.7 billion euros will be eliminated by reducing payments to power companies, 900 million euros will be added to consumers’ bills and another 900 million euros of costs will be subsidized by the government.

*The government will set in place stabilizers to prevent deficits from accumulating in the future, such as rules that limit new costs added to electric system if not compensated by an equivalent gain in returns. Regions introducing additional regulations that add costs have to pay for them.

*The government will cap the return on investment for renewable-energy generators at about 7.5 percent, based on the yield of 10-year treasury bonds plus 300 basis points. Returns on transportation and distribution of power will be capped at about 6.5 percent, or treasury-bond yields plus 200 basis points.

*A new incentive system to lower energy costs for the Spanish islands will see wind and solar power generators earn lower rates of 85 euros to 90 euros per megawatt, making them cheaper than conventional power, which often has to be transported from the mainland, Soria said.

*Spain will cut capacity payments to gas-fired plants and allow generators to mothball 6 gigawatts of gas-fired plants out of a total of 26 gigawatts, as the priority given to renewable energy producers has rendered the plants underused at very high fixed costs, Soria said.

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