“One and a half percent of the current in increase in inflation is directly attributable to the price of energy”.
“The government’s hysterical reaction, changing legislation every two weeks, will have an impact on investment in our country and explains the Italian economy’s ‘sorpasso’”.
“Energy has become one of the main fixed costs of food distribution. Its increase over the last few years has set alarm bells ringing in our sector, which may see its sustainability compromised over the next few months”.
“The government must do everything possible to make the cost of energy stable, because if prices are subject to increases and decreases that cannot be regulated through contracts, we may have a very serious problem in becoming efficient and competitive”.
“The legislative measures that the Government adopts on energy must not have the effect of disincentivising renewable production, but should be consistent with the government’s ambitious energy transition goals”.
“Legal certainty and regulatory stability are key for attracting investment to Spain”.
“The excessive and unjustified use of Decree Laws has gone from representing between 20-25% of legislative activity between 1982 and 1994 to over 80% in the present day”.
“The month and a half between the two Royal Decrees affects our country’s legal certainty and regulatory stability, because the rules were changed with no discussion, no prior dialogue, and with first drafts that were also detrimental to clean energy”.
Madrid, 4 November 2021 – Royal Decree-laws 17/2021 and 23/2021 affect the Spanish economy and investment in our country, affirm the legal experts and economists who took part in the session on ‘Energy regulation and its impact on the economy’ organised by the Pérez-Llorca/IE Chair on Commercial Law. Fernando Fernández Méndez de Andes, professor at IE University, Ignacio García Magarzo, Director General of ASEDAS (the Spanish Association of Distributors, Self-Service Stores and Supermarkets); Ana Cremades, Partner at Pérez-Llorca and State Advocate on leave of absence and Jesús Cudero, Of Counsel at Pérez-Llorca and Senior Judge on leave of absence from the Spanish Supreme Court all took part in the event.
Fernando Fernández Méndez de Andes, professor at IE University, began by reminding attendees that “generation costs only represent a third of the electricity tariff: another third finances public policies and the rest are taxes and fees such as emission rights”, which he referred to as “the direct cost of the energy transition”.
Fernández also pointed out that “we have to get used to high energy prices, perhaps not at the current levels, but high levels nonetheless, given how unattractive it will be to invest in gas which is destined to disappear and that the price of emission rights will increase fivefold in order to meet the decarbonisation targets set for 2050”.
Concerning the macroeconomic impact of the increase of energy costs, the economist and professor at IE University stated that “one and a half percent of the current increase in inflation is directly attributable to the price of energy”, and that the same is true of the correction in the expected growth of the Spanish economy in 2021, “which has gone from 6% to between 4.5-5%”.
In general, Fernández lamented “the government’s hysterical reaction, changing legislation every two weeks in a manner which did not inspire confidence”, and pointed out that “this will have an impact on investment in our country in the short and medium term due to the decline in its institutional quality, which of course explains the Italian economy’s ‘sorpasso’ with respect to that of our country”.
Ignacio García Magarzo, Director General of ASEDAS (the Spanish Association of Distributors, Self-Service Stores and Supermarkets) pointed out that his sector presents features distinct to those of other activities “due to its geographical dispersion, because we must guarantee the cold chain and because we cannot close our stores that distribute food to consumers, meaning that it is not possible to adapt our functioning to the cost of energy”.
In this context, García Magarzo affirmed that, over the last few months, “energy has become one of the largest fixed costs of food distribution”, only behind human resources. “Its increase over the last few years has set alarm bells ringing in our sector, which may see its sustainability compromised over the next few months”. Likewise, he pointed out that “between the Royal Decree-laws of 15 and 23 October, we were faced an enormous regulatory threat which has called into question the contracts for sectors like ours, where medium-term hires are dominant”.
This “grave, unexpected and difficult to justify” threat been partially resolved by the second Royal Decree-law, but García Magarzo urged the government to do everything possible “to make the cost of energy stable, because if prices are subject to increases and decreases that cannot be regulated through contracts, we may have a very serious problem in becoming efficient and competitive in a sector with margins as low as ours”.
Ana Cremades, Partner at Pérez-Llorca y State Advocate on leave of absence, went on to explain that “Royal Decree-law 17/2021 was much more than a shock”, and that “although in the end, the profit reduction mechanism will not have a practical application for many plants, it has caused disruption among market players”. As such, she urged that “the regulator act prudently, and above all, with an understanding of how the market functions, so as not to affect either consumers or the ability to attract investment in renewables”.
Cremades also recalled that the energy transition “is a clear objective of the EU, but also of our government”, and that the National Integrated Energy and Climate Plan (Plan Nacional Integrado de Energía y Clima, PNIEC) is in the end a programme proposal “whose effective application depends on the approval of specific standards”. As such it is necessary that the adopted legislative measures do not “have the effect of disincentivising renewable production in such a way that could clash with the executive’s ambitious energy transition goals”.
Lastly, she highlighted the importance of guaranteeing legal certainty and regulatory stability “for a country which, according to the PNIEC, needs to attract €92 billion of private investment for the 60 GW renewable energy installation, because legal certainty and regulatory stability that we are unable to provide ourselves will be provided by other countries we are competing with to attract such investments”.
Lastly, Jesús Cudero, Of Counsel at Pérez-Llorca and Senior Judge on leave of absence from the Spanish Supreme Court, called for a reflection on “the extent to which legal certainty has been compromised not only by what has happened over the last month and a half, but by the regulation of the energy market over the last 25 years”.
In this respect, Cudero lamented “the excessive and unjustified use of Decree Laws”, which has led to this instrument “representing between 20-25% of legislative activity between 1982 and 1994 to over 80% in the present day”. This situation, in his opinion, “damages legal certainty because it becomes an ordinary way of legislating and deprives the legislator of its own functions, such as democratic debate in the Spanish Parliament, or the ability of those affected by such decrees and the consultative bodies to provide the contributions they consider relevant or – in the case of the latter – to fulfil their own constitutional function”.
The Senior Judge on leave of absence from the Spanish Supreme Court also pointed out that “the terminology used in the first decree on the ‘reduction of the excess remuneration’ is not without merit, nor is the assertion that said excess remuneration has taken place ‘to the detriment of consumers’”, expressions that require the government to “strongly clarify if it wishes to end the current pricing system”.
Lastly, Cudero also described as “unusual” the modification of a Royal Decree by means of an explanatory note and the subsequent appearance of a second decree, although the new regulation is certainly on a more stable footing. In any event, in his view, the month and a half between the two Royal Decrees affects “our country’s legal certainty and regulatory stability”, because “the rules were changed with no discussion, no prior dialogue, and with first drafts – subsequently corrected – that were also detrimental to clean energy”.