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Spanish electricity utilities could face new domestic coal legal case

23 Apr 2013 18:11:51 | edem

Spanish thermal power generators could face a further squeeze on their profits if a legal action from the country's domestic coal lobby group succeeds.

Carbunion plans to counter an appeal lodged at Spain's high court from utilities Endesa, Iberdrola and Gas Natural Fenosa to end their obligation to buy domestic coal for electricity generation, the Spanish domestic coal association said on Monday.

The obligation comes from a decree law passed in 2010 forcing utilities with plants able to burn domestic coal to buy this coal for electricity generation on the grounds of security of supply since early in 2011 (see EDEM 23 February 2011). This coal contains less energy than the international standard, increasing fuel costs.

At the same time, Spanish utilities' power prices have been pressured by falling demand for some time, and heavy oversupply from renewable and hydro generation in the last month has seen grid operator Red Electrica ordering cuts to Spain's nuclear fleet (see EDEM 3 April 2013). These low prices have led to market distortions in recent weeks (see EDEM 10 April 2013).

Legal case

Carbunion alleged that, since the start of the year, an interim legal appeal lodged by the three companies had cost the Spanish coal-mining sector €52m.

The group said the three Spanish utilities' appeal was based on the fact that the remuneration level agreed between the utilities and the government for 2013 does not take into account the so-called "green cent" tax and the 7% levy on all generation introduced from 1 January (see EDEM 21 December 2012).

The coal body said it recognised the utilities' concerns that introducing this new range of charges to generators would erode any payments for burning domestic coal, but that the requested suspension of payments threatened the security of supply of the Spanish electricity system.

Endesa most affected

Endesa CEO Andrea Brentan told the company's annual shareholders' meeting on Monday that utilities "should not be under the obligation to buy coal without generating electricity, or to generate and make a loss".

Endesa chairman Borja Prado Eulate also said the new deficit-reduction measures that took effect from the start of this year - a flat charge of 7% on all electricity generated in Spain, as well as individualised charges dependent on the fuel used - would also have a "very significant" impact, although that could not yet be quantified exactly.

Prado Eulate said that Endesa was disproportionately affected by measures the Spanish government has taken to try to cut down Spain's ballooning tariff deficit - the debt that accrues when regulated spending exceeds regulated income.

"The regulatory measures adopted do not affect the Spanish electrical sector symmetrically or fairly across the board: Endesa is the most negatively affected company as a result of the measures announced or approved by this government.

Endesa finances 52% of the tariff deficit including the non-mainland cost, he said. The impact to Endesa on its 2012 annual results was €313m, he added.

Endesa was unavailable to comment on the court case. Rob Songer

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