New regulations in renewable energy, infrastructure, telecommunications, and ESG are expected to impact companies and investors in Spain in the coming year.
By José María Alonso and Leticia Sitges
Despite the ongoing effects of the pandemic, the Spanish government has established a route toward decarbonizing and digitalizing the economy and toward promoting circular-economy initiatives.
This post highlights public law-related developments and trends to anticipate in Spain in 2021.
- Next Generation EU and Public-Private Collaboration
Spain is one of the main beneficiaries of Next Generation EU, the temporary recovery fund created by the European Union aimed at both tackling the consequences of the COVID-19 crisis and accelerating the digital and green transitions of the economy. This fund will enable Spain to obtain financing of up to €140 billion in the form of transfers and loans. The Spanish government aims to mobilize the transfers, worth almost €72 billion, between 2021 and 2023 and expects to receive €26.6 billion as soon as this year.
The Spanish government has outlined how it will use this financing in its Recovery, Transformation and Resilience Plan, which is structured around four topics: ecologic transition, digital transformation, gender equality, and social and territorial cohesion.
On January 1, 2021, Royal Decree-Law 36/2020, which approves urgent measures for the modernization of public administrations and for the implementation of the Recovery, Transformation and Resilience Plan, entered into force. This regulation creates new forms of public-private collaboration, such as the Strategic Projects for the Recovery and Transformation of the Economy (known as PERTE), and establishes provisions in relation to agreements with public entities as well as public procurement, subsidies, and administrative procedures.
- Climate Change and Energy Transition
The Spanish Parliament is currently processing a Climate Change and Energy Transition Bill, which aims to achieve climate neutrality by 2050. The bill also establishes four objectives to achieve by 2030:
- Reduce greenhouse gas (GHG) emissions by 20%, compared to 1990 levels
- Achieve a 35% share of renewable energy in final energy consumption
- Generate 70% of electricity from renewable energy
- Improve energy efficiency, with the aim of decreasing the consumption of primary energy by at least 35%
The bill also focuses on the hydrocarbons sector and aims to restrict all new exploration, research permits, and concessions to exploit hydrocarbons, which are de facto suspended. Existing research permits and concessions for the exploitation of hydrocarbon deposits would not be extended beyond 31 December 2042.
Pursuant to the bill, the Spanish government would design a plan for the divestment of state-owned investments in companies or entities whose commercial activity includes the extraction, refining, or processing of fossil fuel-based energy products within two years from the regulation’s entry into force.
As a result, investment opportunities for both Spanish and foreign investors could arise within the envisaged divestment in the Spanish energy market.
- Renewable Energy Development
Spain has announced ambitious targets for the development of renewable energy under its proposed Integrated National Energy and Climate Plan 2021-2030, which involves the installation of around 5,000 MW per year of new capacity over the next decade.
In order to promote renewable energy generation, the Spanish government passed a set of regulations (Royal Decree-Law 23/2020, Royal Decree 960/2020 and Ministerial Order 1161/2020) in 2020 that established a new remuneration framework for renewable energy sources and electricity generation. The remuneration framework is based on the recognition of long-term energy prices and is awarded through competitive tendering processes (the remuneration of renewable energy is known as REER).
The first REER tendering process took place on January 26, 2021, when 3,000 MW were awarded. According to a timeline published by the Ministry for the Ecological Transition, at least 3,660 additional MW are to be awarded this year.
Royal Decree-Law 23/2020 also approved rules affecting permits obtained after 27 December 2013 to access and connect to the transmission and distribution grid. The regulation also suspended the issuance of new permits until subsequent regulations were passed. As Royal Decree 1183/2020 and Circular 1/2021 have been published, the legal framework on access and connection for energy producers is complete, meaning new grid access and connection permits can be issued.
Additionally, the Spanish government is drafting a law to create a National Fund for the Sustainability of the Electricity System, which will cover the costs associated with remuneration regime renewables, cogeneration, and waste. With the incorporation of the fund, such costs will be assumed by wholesale suppliers from all energy sectors and will subsequently be removed from consumer bills.
- New EU ETS Period for 2021-2030
The EU Emissions Trading System (EU ETS) has started its fourth phase, which applies to the period of 2021-2030 and aims to reduce the EU’s overall GHG emissions by 43% by 2030, compared to 2005 levels.
The Spanish government will pass relevant regulations to implement the aspects of the EU ETS that relate to adjusting the annual free allocation of allowances.
Directive (EU) 2018/410 of the European Parliament and of the Council (December 14, 2018) envisions mechanisms to facilitate investment in low-carbon technologies. To facilitate this, EU Member States need to organize competitive bidding processes, to take place in one or more rounds between 2021 and 2030. The bidding will take place for projects involving a total amount of investment exceeding €12.5 million and will select the investments to be financed through the allocation of free allowances. Spain is set to adopt relevant regulations to implement those financing mechanisms.
- ESG-Related Disclosures
ESG has been a main area of focus for the Spanish government in recent years. As a result, the Climate Change and Energy Transition Bill calls for new reporting obligations. Under the bill, listed companies, financial institutions, and insurers would have to prepare an annual report evaluating the impact of climate change risks on their finances.
The Bank of Spain, the Stock Exchange Commission, and the General Directorate of Insurance and Pensions shall jointly prepare, every two years, a report of the impact of climate change risks on the Spanish financial system.
Moreover, the Spanish government intends to pass a new regulation establishing the procedure to certify the energy performance of buildings. The aim is to promote energy efficiency in buildings as well as to ensure that the energy they use is mostly sourced from renewable sources. Both purchasers and users will be provided with an energy performance certificate.
- Valorization of Waste as Part of the Circular Economy Trend
The Spanish government is in the process of enacting a regulation focused on the valorization of waste as part of the circular economy trend. Notably, the proposed regulation includes:
- Limitations on single-use plastics, including restrictions on their introduction to the market and consumer information obligations; additionally, a tax on single-use plastic packaging will be introduced
- Ambitious targets for the re-use and recycling of municipal waste, and for the separate collection of plastic bottles from 2025
- Priorities for the management of waste in order to avoid disposal to landfills
Spanish industrial operators producing waste will be required to adopt measures to implement the new regulation and to comply with the new obligations. Energy efficiency will be key.
- Foreign Direct Investment Restrictions
Within the COVID-19 related measured adopted by the Spanish government, one of the most relevant was the amendment of Article 7 bis of Law 19/2003, which establishes the legal framework for capital movements and foreign economic transactions. The amendment suspends the liberalization of foreign direct investment (FDI), a regime that had been in place in Spain for more than 20 years. As a result, since March 2020, transactions over €1 million by which foreign investors reach ownership of 10% or more in a Spanish company or control that company under antitrust regulations may require prior authorization. This prior authorization is required only if (i) the target carries out activities with material relevance in certain sectors that are considered strategic or (ii) regardless of the sector of the target, the foreign investor meets certain characteristics.
In November 2020, the Spanish government extended the scope of application of Article 7 bis to investors resident in the EU or the European Free Trade Association (EFTA) provided that (i) the Spanish investment target is listed in a Spanish official secondary market or (ii) the value of the transaction is greater than €500 million. This extension to EU and EFTA investors is transitory and will only be in place until June 30, 2021.
The novelty of the Spanish FDI regime and the broad definitions used in Article 7 bis have caused certain interpretative issues. In 2021, the Spanish government is likely to amend Royal Decree 664/1999 on Foreign Investments so as to develop Article 7 bis and clarify the investments that are subject to prior authorization.
- Telecommunications and Digital Transformation Trends
EU Member States were required to transpose Directive (EU) 2018/1972 of the European Parliament and of the Council (December 11, 2018) establishing the European Electronic Communications Code (EECC) by 21 December 2020. However, Spain is still drafting its regulation to transpose the EECC and will likely pass it at the end of 2021.
Spain’s regulation, the New Telecommunications Law, will (i) include in its scope, for the first time, number-independent interpersonal communications services, (ii) modernize user rights, and (iii) review the management of radio spectrum to promote the deployment of 5G and other innovative services.
The New Telecommunications Law is one of 50 measures foreseen in Spain Digital 2025, a five-year governmental strategic plan to promote digital transformation as one of the fundamental levers to relaunch economic growth. Spain Digital 2025 contemplates the implementation, during 2020-2022, of a set of structural reforms that will mobilize a significant volume of public and private investments, in the vicinity of €70 billion (€20 billion by the public sector, of which €15 billion will correspond to Next Generation EU, and €50 billion by the private sector).
- Mobility and Sustainability
The Recovery, Transformation and Resilience Plan includes an action plan to ensure sustainable, safe, and connected mobility in urban and metropolitan areas. The plan foresees the establishment of low emission zones and a massive deployment of charging infrastructure to encourage the use of electric vehicles. It also includes a major plan for the modernization of key transport and intermodal infrastructures and the development of the main European corridors.
In line with this objective, the Spanish government announced an initiative called Mobility Strategy: Safe, Sustainable and Connected 2030, which establishes a roadmap for the Ministry of Transport, Mobility and Urban Agenda for the next 10 years.
To implement this strategy, the government is working on a Draft Law on Sustainable Mobility and Transport Financing that will review transport taxation and financing and will establish the basis to plan and finance transportation infrastructures. Moreover, the law will regulate logistics and automated transportation and will promote sustainable mobility and research and development in this sector.
- Food Chain Developments
In December, the Spanish government passed Law 8/2020, which adopted certain urgent measures in the field of agriculture and food. Within the agricultural and food supply chain, there are often significant imbalances between suppliers and buyers of agricultural and food products. These imbalances can lead to unfair trading practices. For this reason, the Spanish government has decided to impose certain restrictions. In particular, in the food supply chain, each operator is obliged to pay the prior operator a price equal to or higher than the production cost incurred by such operator. This system intends to preserve the growing added value and to prevent the final retail operator from passing on to any of the previous operators the business risk arising from its commercial policy in terms of the prices offered to the public.
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