In Spain, a large industrial sector uses cogeneration to generate electricity by harnessing the waste heat from its factories, spanning ceramics, paper, and food production. Amid the energy crisis, many factories faced losses and saw wages kept low by government policies, prompting some plants to shutter in both the previous year and the current one.
Nearly a hundred cogeneration facilities faced a flood of petitions for redress. Controversial administrative proceedings have been brought before the Supreme Court to seek compensation for damages caused by the regulatory framework created by the Ministry for the Ecological Transition, which was intended to guarantee support for these companies, according to multiple sources from the industrial sector. This information comes from the Prensa Ibérica group and other industry sources.
Last year, about two-thirds of cogeneration plants halted operations as electricity generation produced losses, despite the sector being safeguarded by law to cover costs. This year, electricity production has already fallen by more than 50 percent as profit-and-loss accounts struggle to reflect actual performance.
Cogeneration plants must acquire gas for their processes and generate electricity under a legally guaranteed fee through the Recore system, a mechanism used by regulated renewable energy sources that had previously received premiums. Industry groups argue that a sharp rise in gas prices last year coupled with wholesale electricity prices that were lower than government projections led to record losses, with few mitigations from authorities to ensure facilities could cover their generation costs.
New methodology
The government is pursuing a comprehensive reform of the compensation model for cogeneration. The Ministry for the Ecological Transition, led by Vice President Teresa Ribera, is preparing a proposal for a new wage calculation methodology. As confirmed to cogeneration and Acogen industry associations, a public consultation will be opened soon to gather industry input.
The new methodology is overdue. Officials had promised a plan before May 31, but the reform has yet to arrive. For now, the current model remains in place while a transitional sine wave continues until the new framework takes effect. The industry is pressing for a timely update to avoid continued uncertainty amid a crisis that harms investment and legal clarity.
From a sector with about 600 operating plants in the Spanish market, observers warn of an “emergency” if the new methodology is delayed again or the ministry fails to publish revised fee values for the second half of the year. There is talk of a total shutdown by July 1 if the present wage model based on certain electricity price estimates forces plants to operate at a loss.
“Collapse” next July?
Cogeneration facilities can opt to leverage compensation from the Iberian gas price cap for electricity generation or rely on the Recore fee. The problem is that current fee values are calculated using 2018 electricity market forecasts, with prices around 208 euros per megawatt hour originally assumed vs. current rates near 100 euros, which essentially strips away guaranteed wages.
If the government does not update these parameters for the second half of the year or implement a full reform, the new cogeneration fee could drop to zero, forcing all plants to stop operations from July 1.
Industry players argue that the process for implementing the new methodology has suffered significant delays and that the system should be more flexible, avoiding semi-annual scenarios and monthly fee adjustments tied to gas prices. The government plans to adopt an annual methodology while allowing after-the-fact adjustments and guaranteeing charges based on actual electricity and gas prices, though the pace and specifics remain contested.