The most recent energy sector reforms passed in Spain represent the fourth time that a sweeping set of retroactive changes has rocked the country’s renewable energy (RE) industry. This new Royal Decree Law modifies billions of Euros worth of renewable energy contracts in a move that, when added to previous retroactive measures, will almost undoubtedly trigger insolvencies across the sector.
Instead of looking at the new Law in detail, this article takes a step back, and looks at the key lessons that policymakers around the world should draw from the Spanish experience.
As highlighted in previous analyses, the underlying problem that legislators in Spain are trying to address is the rapid growth of the electricity system deficit, which now stands at €26 billion.
This deficit has been created over the last fifteen years as the costs of generating electricity have risen faster than what utilities can lawfully recover from rates. The root cause of this is ultimately that Spain limits the amount by which electricity prices can increase.