The Ministry for the Ecological Transition pressures the National Commission of Markets and Competition (CNMC) to approve a sharp increase in the remuneration of electrical networks, as demanded by the sector, despite the fact that the law prohibits Competition from receiving “instructions ” external.
On October 31, the Ministry published some unusual, because specific, energy policy “guidelines” to the CNMC. Unlike the other three issued since 2019, they are very specific: they refer to the circular prepared by the organization to approve the methodology for calculating the financial remuneration rate for the activities of transportation and distribution of electrical energy, and regasification, transportation and distribution of natural gas for the period 2026-2031.
The CNMC plans to approve this circular within a year (in principle, October 2025), after the corresponding public consultation. The Ministry’s guidance gives you some suggestions on how to calculate that rate, which is the interest rate charged by the regulated assets that consumers pay in access tolls: the part of the bill that finances distribution networks and transportation, which are 17% of the total costs of the electrical system.
The current financial remuneration rate was set in November 2019, after the Government transferred those powers to the CNMC due to European demand, with the threat of an infringement file for Spain. Then it was set at 5.58% for six years. Now companies are demanding a strong increase for the next regulatory period.
The Aelec employers’ association, to which Endesa, Iberdrola and EdP belong, defends that the extra investments to meet the expected growth in demand “are not a cost”, because “this new demand pays its corresponding tolls”, and these are between five and ten times higher than the cost that this new network represents for the rate, “including an increase in the financial remuneration rate to a range of 7.5%-8%.”
These figures would be close to the levels of Italy, Norway or Greece, with financial remuneration rates of 8.9%, 8.2% or 6.7%, respectively, well above what, according to the companies, the CNMC, around 6.5%.
According to Aelec, a rate of 7.5% would mean around 700 million euros annually, “approximately 1.7% of the total cost.” In its guidelines, the ministry does not mention what profitability should be applied, but asks the CNMC to “attend not only to the objectives established for Spain, but also to the context of competition at the European and international level for financial resources and investments in energy transition. , with a driving effect due to its capacity to allow new investments in renewables, decarbonization or industrialization.”
“The formula must take into account that investments in infrastructure occur in a context of acceleration of the energy transition at a global level, particularly in Europe, with high competition for access to capital markets,” says Ecological Transition.
The order signed by the still minister Teresa Ribera goes into detail and says that in the design of this formula “the possibility of modifying the methodology for calculating risk-free profitability, as well as the methodology for calculating the cost of debt, will be considered. , especially”. The objective is to “soften the effect of past exceptional events (2018-2023) on the determination of risk-free profitability and the cost of debt during the future regulatory period (2026-2031).”
“Successful” approach
An approach that Aelec considers “successful” and that, according to the ministry, will allow “the appropriate signals to encourage the activities of transport and distribution of electrical energy, especially to meet the growing electrical demand linked to emission-free mobility, electrification of the industry and the deployment of new energy vectors, at the same time as facilitating the integration of renewable energy to cover this new demand.”
Behind it is the necessary profitability for the investments that should be made in the coming years to make renewable deployment viable and respond to the current electricity demand and the one that wants to be incorporated in the coming years, through, for example, the famous centers of data. In a country at the bottom of Europe in the deployment of electric cars, these centers can be decisive in consolidating the timid recovery in electricity consumption, which last year fell to 20-year lows.
The ministry, which does not comment on this matter, emphasizes in its order that its guidelines “may cover any aspect that is directly related to the Government’s powers in energy matters.” But in the sector there are those who define them as “instructions”, something that Competition cannot receive.
The Law Creating the CNMC states that this body “acts with full independence from the Government, Public Administrations and any commercial business interest.” And that “without prejudice to the collaboration with other bodies and the powers of directing the general policy of the Government”, in the performance of their functions, neither their staff nor their decision-making bodies “may accept or request instructions from any public entity.” or private.”
A Competition spokesperson indicates that “regarding the remuneration rate, it is currently not possible to advance a specific value, since the CNMC technical teams are in the process of analysis and evaluation. The final proposed value will go through a public consultation process prior to its official publication, in order to guarantee transparency and participation of interested parties.”
Technically, the rate of return on capital is defined as the opportunity cost of invested capital, based on the so-called WACC (Weighted Average Cost of Capital). Before 2019, it was calculated based on the yield of the 10-year Spanish State bond plus a spread, but it was replaced by a specific CNMC methodology to guarantee a “reasonable profitability” for companies. Among other things, the average cost of the previous cycle is taken into account.
Sector sources who are very critical of the ministry’s guidelines point out that, in the same way that in the previous regulatory period the CNMC had to include certain factors that caused the remuneration rate to rise, now it cannot exclude others that cause it to decrease. This is what Ecological Transition demands when asking to “soften the effect of the exceptional events of the past.”
Ribera’s order reminds the CNMC that this rate is “key” in the energy transition, “by contributing to the deployment of the infrastructure necessary to integrate new demands and new renewable generation into the system.” It echoes the reports of former Italian Prime Ministers Enrico Letta and Mario Draghi, who point out “the importance of investments in networks to advance the electrification of the economy and avoid bottlenecks, and to mobilize massive investments in the European energy infrastructure networks.
If Ecological Transition considers that the proposed Circular that the CNMC finally publishes does not comply with its guidelines, the parties can convene a Cooperation Commission to seek an “understanding” and as a “prior conciliation mechanism” for a consensual solution. This commission would be made up of three representatives from the Secretary of State for Energy and three from the CNMC, with the rank of general subdirectorate.
Relevant moment, but with interim
If there is no agreement, the CNMC may not follow these guidelines and say that it approves them “after hearing the ministry.” By then its powers could have already been assumed by the future National Energy Commission (CNE). And these guidelines have been published at a time of certain interim, with Ribera leaving for the European Commission and a project to recover the defunct CNE, which would take supervision of the sector from the CNMC, although it remains to be seen when and how it will be implemented. The split is concrete, given the Government’s precarious parliamentary support.
The moment is very relevant, since in the coming years new networks will be necessary to allow the expected electrification of the economy, absorb new demand and meet the ambitious renewable penetration objectives for 2030 contemplated in the National Integrated Energy and Energy Plan. Climate (PNIEC), whose last review was sent by the Executive to Brussels in September.
Aelec believes that these guidelines are “a good step, since it takes into account the great competition that exists in the capital markets, so it is important to offer an attractive rate” to attract investments, advance electrification and “compete with others countries.”
“We are sure that the CNMC, aware of the rates that the countries around us are setting, will know how to place Spain up to the challenge.” With these guidelines, “it will be possible to have a rate of financial remuneration for investments in networks in line with what other EU countries are already implementing” and turn Spain into “the industrial hub of Europe.”
The electricity companies assure that it is not about raising tolls, but rather about “achieving a sufficient level of investment to facilitate access and connection of the demand that is being requested today, maintaining the economic sustainability of the electrical system, as well as the impact on the consumer. ”. They argue that this “would lead to a sustained decrease in tolls” and that “there is no risk of overinvestment,” since investments in transportation depend on binding planning by the Government.
The European employers’ association Euroelectric figures in its report Grids for Speed the need for investments in distribution networks in Spain of around 4.3 billion annually. It would be the fifth European country that would require the most effort, according to that European lobby.
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