The energy sector has been one of the most active and attractive in Spain in recent years. However, it has entered into crisis due to a complicated cocktail: (i) the impact of the war in Ukraine; (ii) the rise in inflation; (iii) the increase of the costs of financing projects; (iv) the rise in energy prices to unprecedented levels; and (v) successive regulatory changes. However, it continues to be one of the sectors with the greatest investment opportunities in Spain.
The highlights of the past year are the numerous regulatory changes approved by the Government to intervene in the price of gas and electricity to face their increase. Successive regulations have been approved with the idea of protecting the economically weaker population. In particular, the most striking has been the so-called “Iberian exception”. With the approval of the European Union, Spain and Portugal have limited the maximum selling price of gas in a complex mechanism that has managed to reduce the price of gas and electricity. However, this growing Government interventionism in the electricity market is being contested by the companies, and a strong litigation battle is ahead.
Within the framework of this growing interventionism, the Government will approve before the end of the year an extraordinary tax on large energy companies. This tax seeks to tax the excess profit that the large energy companies are earning from the increase in energy prices. The tax has been strongly rejected by the sector and the big companies will challenge against its regulation as soon as it is approved.
Gas interconnections between Spain and the European Union via France and Italy have attracted a lot of attention. This is a historical problem that has come to the forefront in the face of the supply crisis caused by the war in Ukraine. The issue will continue to be addressed and worked on in the coming years. It is a very important issue for Spain. The same for the electricity interconnections. An extension of these interconnections could re-launch Spain to a first-rate geostrategic position in the European energy market due to its climatic conditions and geographical location.
Likewise, a relevant fact is that Spain has abandoned the Energy Charter. After the experience of the large number of arbitrations it had to face after the regulatory changes to renewables in the last decade, Spain does not want to repeat the experience after the new successive regulatory changes. From now on, all claims against Spain will have to be made in the framework of national and European courts.
Otherwise, the Government continues to make a clear commitment to renewable energies. Not only photovoltaic and wind power, but also renewable gases and hydrogen. Regarding solar and wind, the market continues to be very active. Main players are specially focused in greenfield projects. Important deals have been closed and more are announced for next year. In the absence of projects, sellers have a preponderant position and prices have increased substantially. The market is waiting for capacity tenders to be called in order to be able to develop more projects. Right now, the main problem in the development of projects is the slowness of the administrations in the permitting processing. The delay is causing damage and concern. Main players are demanding greater agility from the public administrations in this process. There is a clear discrepancy between the goals of the authorities and the speed authorising projects. Thousands of them will be at serious risk if the relevant public administrations do not move them forward.
Renewable gases and hydrogen have been major players in the market. A large number of international alliances have been closed between operators for the development of these projects. There is a great interest in hydrogen and it is believed to be the energy of the future.
Article published in Chambers & Partners, Spain Energy Overview