The Ministry of Ecological Transition is putting pressure on the National Markets and Competition Commission (CNMC) to approve a sharp increase in the remuneration of electricity networks, as demanded by the sector, despite the fact that the law prohibits the competition of receiving external “instructions”.
On October 31, the ministry published unusual, because specific, energy policy “guidelines” to the CNMC. Unlike the three others issued since 2019, they are very precise: they refer to the circular prepared by the organization to approve the methodology for calculating the rate of financial remuneration for the activities of transport and distribution of electrical energy, and regasification, transmission and distribution of electrical energy. 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 this rate, which is the interest rate charged by regulated assets that consumers pay in access tolls: the part of the bill that funds distribution networks and transport, which represents 17% of the total. electrical system costs.
The current rate of financial remuneration was set in November 2019, after the government transferred these powers to the CNMC due to European demand, with the threat of an infringement file for Spain. Then it was fixed at 5.58% for six years. Companies are now demanding a big increase for the next regulatory period.
The employers’ association Aelec, to which Endesa, Iberdrola and EdP belong, defends that additional investments to meet the expected growth in demand “are not a cost”, because “this new demand pays its corresponding tolls”, and those -these are between five and ten times higher than the cost that this new network represents for the tariff, “including an increase in the financial remuneration rate in a range of 7.5% to 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 represent around 700 million euros per year, or “around 1.7% of the total cost”. In its guidelines, the ministry does not specify what profitability must be applied, but asks the CNMC to “watch not only the objectives set for Spain, but also the context of competition at European and international level for financial resources and investments in energy transition. , with a driving effect due to its capacity to enable new investments in renewable energies, decarbonization or industrialization.
“The formula must take into account the fact that investments in infrastructure take place in a context of acceleration of the energy transition at the global level, particularly in Europe, with strong competition for access to capital markets”, specifies Ecological Transition .
The order signed by the current Minister Teresa Ribera goes into detail and specifies that in the design of this formula “the possibility of modifying the methodology for calculating the risk-free profitability, as well as the methodology for calculating the cost of debt. . , in particular”. The objective is “to mitigate 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 )”.
A “successful” approach
An approach that Aelec considers “successful” and which, according to the ministry, will make it possible “to send the appropriate signals to encourage transport and distribution activities of electrical energy, in particular to respond to the growing electricity demand linked to emissions-free mobility, the electrification of industry and the deployment of new energy vectors, while facilitating the integration of renewable energies to cover this new demand.
Behind it is the necessary profitability of the investments which should be made in the years to come to make the deployment of renewable energies viable and to meet the current demand for electricity and that which wants to be incorporated in the years to come, through, for example, the famous data centers. In a country at the bottom of Europe in terms of the deployment of electric cars, these centers can be decisive in consolidating the timid recovery in electricity consumption, which fell last year to its lowest level in 20 years.
The ministry, which makes no comment on this issue, emphasizes in its decree that its guidelines “can cover any aspect directly linked to the Government’s powers in energy matters”. But in the sector there are those who define them as “instructions”, something that the competition cannot receive.
The law establishing the CNMC stipulates that this body “acts completely independently of the government, public administrations and any commercial interest”. And that “without prejudice to collaboration with other bodies and the powers of direction of the general policy of the Government”, in the exercise of their functions, neither their staff nor their decision-making bodies “can accept or request instructions to any public entity. ..” or private.”
A spokesperson for the Competition indicates that “regarding the rate of remuneration, it is currently not possible to put forward a precise value, since the technical teams of the CNMC are currently analyzing and evaluating. The final proposed value will be subject to a public consultation process before 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 what is known as WACC (Weighted Average Cost of Capital). Before 2019, it was calculated based on the yield on 10-year Spanish government bonds plus a spread, but it was replaced by a specific CNMC methodology to guarantee “reasonable profitability” for companies. Among other things, the average cost of the previous cycle is taken into account.
Sources in the sector, very critical of the ministry’s orientations, point out that, in the same way as in the previous regulatory period, the CNMC had to include certain factors that caused the increase in the remuneration rate, it cannot now exclude others which cause it to decrease. This is what the Ecological Transition requires when it calls for “mitigating the effect of exceptional events of the past”.
Ribera’s order reminds the CNMC that this tariff is “key” in the energy transition, “by contributing to the deployment of the infrastructure necessary to integrate new demands and new renewable production into the system”. It echoes reports from former Italian Prime Ministers Enrico Letta and Mario Draghi, who emphasize “the importance of investments in networks to advance the electrification of the economy and avoid bottlenecks, and to mobilize investments massive amounts in European energy infrastructure networks.
If the Ecological Transition considers that the draft Circular that the CNMC finally publishes is not consistent 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 of the Secretary of State for Energy and three from the CNMC, having the rank of general sub-directorate.
Relevant moment, but with interim
If there is no agreement, the CNMC could not follow these directives and say that it approves them “after hearing the ministry”. By then, its powers could already be assumed by the future National Energy Commission (CNE). And these guidelines were published at a time of certain transition, with the departure of Ribera 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 this will be implemented. The split is concrete, given the government’s precarious parliamentary support.
The moment is very current, because in the years to come new networks will be needed to enable the expected electrification of the economy, absorb new demand and achieve the ambitious renewable energy penetration targets for 2030 envisaged in the National Plan Integrated Energy and Climate (PNIEC). ), the latest report of which was sent by the Executive to Brussels in September.
Aelec believes that these guidelines are “a good step, because they take 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 other countries”.
“We are sure that the CNMC, aware of the prices set by the countries around us, will be able to put 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 to make Spain “the pole industrialist of Europe.
The electricity companies assure that it is not a question of increasing tolls, but rather of “achieving a sufficient level of investment to facilitate access and connection to the demand demanded today, while maintaining the economic sustainability of the electricity system, as well as the impact”. on the consumer. They argue that this “would lead to a lasting reduction in tolls” and that “there is no risk of overinvestment”, since investments in transport depend on restrictive planning on the part of 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 per year. It would be the fifth European country which would require the most efforts, according to this European lobby.
