The government is preparing a sweeping reform of the subsidy system still benefiting thousands of renewable energy plants. These are the oldest installations that helped launch the sector in the country during the first decade of the 2000s. They are transitioning from receiving incentives solely for production to a framework that aims to ensure owners achieve the reasonable profitability mandated by law, even as wholesale electricity prices experience more frequent downturns.
The Ministry for Ecological Transition, led by the vice president, has launched a public consultation process so energy companies can submit proposals on how to renew the current remuneration regime. The goal is to update the system in light of the national energy landscape, where price volatility can threaten payments to certain facilities. In the ministry’s own documents for the public participation meeting, officials note that the electricity sector has faced new challenges in the past year due to a high share of renewables and a greater incidence of energy surpluses and losses when supply exceeds demand. Wholesale prices have fallen sharply, sometimes turning negative for brief periods in history.
Against this backdrop, there is a call for a deeper reflection on the specific remuneration framework. The administration wants to propose an integrative approach that guarantees early and effective participation by both public and private actors, a reform the sector has been pressing for some time.
Dealing with the shift from premiums to guaranteed returns
Plants covered by the specific remuneration regime for renewables, cogeneration, and waste (Recore) previously received subsidies as production-based premiums. Now they enjoy a legally guaranteed return tied to the investment made. Collectively these are wind and solar installations with a combined capacity of around 29,200 megawatts. If the income from selling electricity does not reach the minimum required to secure that guaranteed return, a top-up is paid through the electricity bill. In the preceding year, payments under Recore approached 4.4 billion euros.
These renewable facilities generally receive a guaranteed return of 7.1 percent, sometimes up to 7.4 percent for many projects, over twenty years for wind and twenty-five for solar. Every three years the actual revenues are compared with the projections for forthcoming years, using a forecast of market evolution and the guaranteed return under the electricity system. In the end, the total return remains fixed, but each three-year period assesses actual incomes against expectations and adjusts future payments accordingly. Then the difference can be paid or recovered depending on the market’s performance.
For instance, in 2020 the energy market plunged during the peak of the covid-19 outbreak, and Recore-supported renewables earned less than anticipated. An extra payment was issued to compensate, even though the government had already conducted an extraordinary review to support payments during the lockdown. During the energy crisis, however, market prices surged to historic highs, and the income these plants earned from selling energy exceeded the projections. At the height of the crisis, the government even advanced a year’s worth of the remuneration review to curb excessive gains that had emerged from price rises.
Industry demands and possible reforms
The government has not yet disclosed the content of the reform under consideration for the renewable subsidy system. It remains focused on collecting sector views before presenting a formal proposal. The renewable sector is preparing a package of legal changes to be submitted to the Ministry.
The renewables sector has urged the government to shorten the interval between reviews and reconciliations of actual income and aid. The request is to move from triannual to annual adjustments, aligning more closely with real price behavior in a market characterized by volatility. Utilities complain about the high bank financing costs they must bear as income from low prices falls short of projections, waiting for future compensation that is not recalculated until after three years and not due for another review until 2026. The Spanish photovoltaic association UNEF, along with APPA, advocates a one-time extraordinary adjustment this year to compensate plants for low market prices, mirroring actions taken during the earlier crisis when extraordinary measures offset high earnings during price peaks.
A minimum annual operating hour requirement under debate
Both UNEF and the Renewable Energy Companies Association push for a change to the current rule that requires a minimum number of operating hours to qualify for support. The rule has been heavily influenced by periods of very low electricity prices. In most cases, the minimum is around 950 hours per year for photovoltaic plants and just over 1,200 hours for wind farms. However, hours when prices are zero or negative are not counted, which now represent more than 700 hours so far this year.
When the rule was introduced, the market rarely saw zero-price hours, and negative prices were uncommon. Today, negative moments have spiked, and renewables fear some plants will lose eligibility for subsidies unless that zero-price and negative-hour exemption is removed from the counting of eligible hours.
There is also a push to ensure that the calculations used to determine the minimum hours consider hours when Red Eléctrica de España, the system operator, orders renewables to suspend production to balance supply and demand.
From the wind and solar industries, the Association of Wind Power (AEE) has highlighted that cost accounting under Recore only includes state taxes and does not reflect the growing array of regional taxes and levies now applied in regions such as the Basque Country, Aragon, and La Rioja. The sector worries that this omission distorts the true operating costs of plants.
The sector-wide push continues as the reform process advances, with stakeholders seeking a fairer, more transparent framework that can withstand the market’s volatility while sustaining investment in clean energy for the long term.