Energy bill: a brown-out

At last we have the government's new draft bill on energy. It is to be enacted into law almost before we had time to read it — all too typical of the opaque and arbitrary character of regulatory decisions in this area. There are two main standards by which to judge its content:

Firstly, the distribution of the burden, in terms of efficiency and equity and, very importantly, of investor confidence in the legal framework within which investments take place.

Secondly, what sort of economic signals it transmits, in terms of incentives to investment and of compliance with environmental objectives.

For a start, we must ask which way we wish to go in the medium and long term — what value we place on security of supply and competition between companies. In the new bill we find not a word on these things. So we have to judge it without reference to the future; but we can still draw some relevant conclusions.

The first surprise is the criterion of retroactivity applied to renewable energies, reducing retroactively the (perhaps excessive) rates of remuneration granted by the previous government in order to promote wind and solar installations. For a government to decide now, unilaterally, on a system that has been working for five or 10 years, what the investment and operating costs ought to have been, and to rewrite the past accounts accordingly, undermines the legal security of all regulated activities.

Can this notion of retroactivity stand the test of international arbitration, or the filter of the Supreme Court? If so, it will open a door for this government, or any future one, to decide what ought to have been the construction, operation and maintenance costs of highways, power plants, telecommunications and other regulated installations, as well as the profitability they ought to have obtained; and then demand reimbursement of the excess. We are talking, here, not about a government's right to decide on new installations, in function of changing conditions; but about what a government must accept and recognize in an already functioning industry — though the previous subsidies, under which the investment took place, may well have been unwisely excessive.

Renewable energies suffer a cutback in the profitability of their grid, effectively stopping all installation of new "smart" grid systems that would rationalize their use. The bill also aggravates the problem of power-company competitiveness, and the repeated rate hikes passed down to household consumers. Especially deserving of criticism is the downgrading of the term "voltage" in the rates, and the upgrading of the term "energy," which is going to boost the electric bills of millions of consumers. The direction is correct, but it would have been better to wait for the National Electric Commission to conclude its useful work in this respect.

As for economic incentives to the investment that our energy system requires, the prospects could not be more discouraging. True, as the long-term view is absent, and as our investment capacities will be saturated anyway for the next few years, the terms of the bill are probably irrelevant in this area. Indeed the whole bill has a banal, pointless aspect, since it contains no real reform, and merely unifies in a single text the lurching moves of the last 15 years, with a few blasts of spite against renewable energies and home-generated consumption.

In short, it does not seem that this model is going to favor investment, or balance the interests of producers and consumers. It will work against a new generation of renewable energy, and against a more advanced development of the grid, because the profitability it proposes does not cover the cost of capital. And it will be hard to attract new investors, whose fingers will be burned by the legal insecurity in Spain. Perhaps the present government trusts that a later one will amend the situation when investment is a more urgent need. Even so, this bill represents a lost opportunity.