The reform of the energy sector approved by the government on 12 July deserves a calm assessment, but at the same time emphasizing the bittersweet taste left by these measures.
We all agree on the need to end the electricity tariff deficit, which weighs heavily on the sector, on consumers and on the State. The reform is no doubt a commendable attempt to put an end to the deficit and structural imbalances that impact negatively on the electricity sector and undermine the competitiveness of our economy.
It is not possible yet to make a precise assessment of the impact these measures will have, since the parliamentary discussion may take several months. However, it can be stated that the reform has more bitter than sweet aspects. It does bring the structural tariff deficit to an end, but at the expense of those who have not generated the deficit and have not been responsible for energy planning.
The Government has reiterated that the reform’s main goal is to end the deficit once and for all, a serious imbalance amounting to over 26,000 million euros. This unsustainable figure was reached after the accumulation over the years of repeated mistakes made by various governments which watched the creation of this huge snowball and did nothing to avoid it or, even worse, took measures knowing that they would result in its exponential growth, as has been the case with the increase in the premiums for solar energy without waiting for them to reach sufficient technological maturity.
The traditional sector is efficient, as demonstrated by the fact that the wholesale price of energy in Spain is 10% lower than the average for the main European countries, while remuneration for electricity distribution is 20% lower. The real problem facing the electricity sector in Spain is therefore this exponential growth in premiums for immature and inefficient technologies, as well as the inclusion in the electricity bill of items that have nothing to do with supply, not to mention a local, regional and national tax treatment unmatched by any other country.
It would seem reasonable to look for the solution to the deficit in the factors that are generating it, by not transferring funds from the most efficient sectors to the inefficient ones, but this has not happened. It does not seem logical to stop or close facilities that produce energy at 50 euros so those that cost 450 euros can continue producing, or to continue increasing obligations unrelated to electricity supply which are included in the electricity bill, or to maintain such heavy taxation.
The electricity sector has borne a tough sacrifice in recent years, which can hardly be compared to the effort made by any other sector in our economy, in order to correct the planning mistakes made by successive governments.
The package of measures approved so far for managing the tariff deficit involves a cut of revenues for the electricity sector of around 5,700 million euros this year, in addition to the impact of the measures approved on 12 July, which amounts to 2,700 million.
It is therefore obvious that the reform of the electricity sector has failed to address the announced ‘balance of effort’. Taking into account the measures included in the last reform of the energy sector alone, the utilities have borne 72% of the adjustment, consumers 19% and the government only 9%.
Another noteworthy aspect is the impact of the reform of the energy sector on electricity distribution remuneration. With the announced cutback in returns, the government has missed a great opportunity to turn this regulated sector into a driver of economic growth and employment. The government’s measures set clearly insufficient after-tax returns, as they are nearly 300 points below the cost of capital. It is surprising for the calculation to be referenced to the Spanish Treasury bond, instead of the weighted average cost of capital (WACC), the system followed at international level.
Also negative is the new regulation for the most efficient renewable energy sources, as it envisages an uneven impact for mature and immature technologies. Not all renewable energy sources are the same. Wind power accounts for around 20% of the energy produced in Spain and 17% of the system’s costs: solar energy plants only produce 4% while increasing the cost of energy by 30%.
All this leads us to believe that we have missed a great opportunity to put in place a regulation consistent with energy policy goals that should have been published previously and as of today are still unknown. This would have made it possible to tackle with a degree of certainty the huge technological challenges facing this sector in the coming years.
Against this backdrop, there is some room for optimism. During the parliamentary process and publication of the norms governing the approved measures, the government has the opportunity to introduce the improvements needed to ensure a more rational system and design an energy plan for the future. We hope that the necessary mechanisms will be introduced in a reform that should cast more light than shadow.
