Nobody doubts in the energy sector that electrical distribution networks are the backbone towards the objective of achieving a decarbonized economy. Companies, employers and other agents have intensified their messages in recent days and urge flexible planning that is reviewed in an agile manner so that they can respond to the new connection needs of renewable generation and consumption in a reasonable time.
The last to speak out was PwC. In his report ‘Electric networks as a cornerstone of the energy transition and industrialization’, presented by Óscar Barrero, partner responsible for consulting in the energy and utilities area at PwC Spain, he highlights the need to establish a framework “simpler, stable and predictable remuneration aligned with best practices and adapted to the new challenges and roles offered by the energy transition that has a positive impact on the Spanish economy and the rest of the sectors.”
In this sense, it demands that all regulated costs and investments that distribution companies are declaring in their audits be recognized ‘ex-ante’ by the National Markets and Competition Commission (CNMC). According to the firm’s data, unit values (investment, operations and maintenance, other regulated tasks, etc.) have lost 28% in value in real terms due to inflation, which has meant that the networks have stopped receiving around 1,658 million euros in remuneration. The investment and O&M unit values were set in 2015 (Order IET/2660/2015) and are not expected to be updated until at least 2026.
The financial rate in Spain is lower than that of France
“The current remuneration framework has lost the ‘ex-ante’ character for which it was defined and must provide legal certainty to the investor,” PwC indicates, highlighting that the financial remuneration rate is not aligned with the new financial or operational context. The current remuneration of electrical networks, which covers the period 2020-2025, sets a financial rate of 5.58%, established by Circular 2/2019 of the National Markets and Competition Commission (CNMC). 4.1% for distribution and 5% for transportation compared to the previous period.4
Spain does not update the financial rate with inflation and this is lower than that of neighboring countries such as France, which is at 7%. “It is necessary to remedy this situation, which leaves the country at a disadvantage, once the new regulatory cycle begins in 2026,” indicate other sources in the sector consulted by La Información. For its part, the International Energy Agency (IEA) estimates that for every euro invested in renewables, one euro must be invested in networks, while the PNIEC sets the ratio at 0.45 euros.
Now, under an inflationary macroeconomic context and with continuous increases in interest rates, the sector demands that Competition adapt the remuneration to the current situation and that the new planning, which is already being worked on and will come into force in 2026, there is no falling sea. The National Integrated Energy and Climate Plan (PNIEC) estimates investments in this section of about 53,000 million euros, around 18% of the total amount that will be mobilized until 2030, a figure that from the employers’ association of large electricity companies, Aelec , they consider insufficient.
PwC warns that investors may consider that the rate of financial remuneration is too low for the level of risk presented by the activity and that these may reduce the level of planned investments. The worsening of the margins of the activity and, therefore, of the financial results of the Companies, leads to a flight of capital from the sector towards other activities or countries,” he states.
Bottleneck for decarbonization
In the company’s opinion, networks are today a bottleneck for decarbonization and there is a danger that they will stall the transition towards clean energy and the fulfillment of climate objectives for 2050. In Spain, the construction of solar projects and wind energy with network authorization, today it would almost triple the current installed capacity, transferring the pressure to the development of networks for their viability,” he points out.
To integrate 11 gigawatts (GW) of renewable energy per year, it would be necessary to invest 5.6 billion euros annually in networks, according to the report, which is why it calls for the real investment limit to be eliminated. Royal Decree 1048/2013 limits the annual investment volume of all electricity distributors indicating that it cannot exceed 0.13% of the GDP (Gross Domestic Product) of each year foreseen by the Ministry of Economic Affairs and Digital Transformation.
European Commission Action Plan: 584 billion
“The investments planned until 2030 would exceed the limits currently established by regulation,” he adds. The average investment between 2015-2018 was 1,482 million euros, while the limit for the period 2023-2030 is around 2,750 million euros. In PwC’s opinion, the current distribution remuneration system has led to a situation of “controversy, regulatory uncertainty and mistrust”, and is “very far from the economic and regulatory parameters that should have already been established, taking into account the urgency of the situation.”
The European Commission yesterday presented an “action plan” to encourage investment in electricity networks in the European Union. The Community Executive estimates that 584 billion euros will be needed in the remainder of the decade to accompany the electrification of the economy. The plan barely recognizes 4,000 million euros of financing from funds budgeted until 2027 and still unused, another 13,000 million from recovery funds and part of the regional funds that could also be used for networks. Community sources acknowledge to EFe that the Executive would like to have more budget allocation, but that it is impossible within the current multiannual financial framework of the EU, which covers the period from 2021 to 2027.
