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Royal Decree 1106/2020 the FERGEI as the CPPA backup mechanism

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Spain

By Royal Decree-Law 24/2020, of June 26, of social measures to reactivate employment and protect self-employment and competitiveness in the Industrial Sector, the Spanish Reserve Fund for granting Electro-Intensive Institutions was created (hereafter, «FERGEI»).

FERGEI assumed the results of the coverage on behalf of the State of the risks arising from contracting the acquisition of electricity in the medium and long term of electro-intensive Corporate Consumers.

Additionally, the Royal Decree-Law 24/2020 attributed to public company CESCE, the Manager Agent status, to manage as insurer or guarantor, on behalf of itself and on behalf of the State, the coverage of credit risk (insolvency of fact or law) in respect of the non-payment of the Corporate Consumer in a CPPA context.

FERGEI has an endowment of 200 million euros per year, to cover a maximum of 600 million euros of investment in three years. From the fourth year, its amount will be determined in the State’s General Budget.

Royal Decree 1106/2020 of 15 December, regulating the Statute of Electro-Energy Consumers (‘Royal Decree 1106/2020’), which entered into force on 18 December 2020, has developed the Royal Decree-Law 24/2020.  We can highlight the following with regard to PPAs:

  1. Insured corporations: Although this limitation has been discussed, the Corporate Consumer has to meet the following requirements:

a) To contract their energy in the electricity production market by any of the means set out in the regulation.

b) To have consumed, for at least two of the previous three years, an annual volume of electricity greater than 1 GWh, and at the same time, for those same periods, to have consumed at least 50 per cent of the energy in the hours corresponding to the tariff period.

c) Operate in a sector or subsector belonging to one of the National Classification codes of Economic Activities (hereinafter CNAE) listed in the annex to Royal Decree 1106/2020.

d) To have a quotient for at least two of the previous three years between the annual consumption and the gross value added of the facility greater than 1.5 kWh/euro. (This value will be reviewed annually).

e) To be validly constituted in accordance with the regulations in force.

f) Be recognized as an electro-intensive Corporate Consumer with the corresponding certificate issued by the Ministry of Industry.

g) Contract at least 10% of their annual consumption for five years, once FERGEI is launched, which undoubtedly means accentuating the development of PPAs market.

This requirement must be met within one year from the date of entry into force of the risk coverage mechanism or from the obtaining of the electro-energy Corporate Consumer certification (see previous letter f), if it is later. Exceptionally, a longer period may be admitted if it is justified for the performance of existing supply contracts prior to the entry into force of this royal decree.

2. Coverage modalities: Both Credit and Guarantee insurances must be prior authorized by the Risk Committee of the Electro-Intensified Market (‘the Risk Committee’). The Managing Agent may also lay down the specific special and particular conditions of each transaction.

3. Insurable risks: Any risks of insolvency under CPPAs context, excluding the legal risk of the operation or the documentation subscribed by the Insured.

As an insurer, the Managing Agent shall not indemnify in the event that:

(i) The losses caused directly or indirectly caused by an action or omission of the Insured himself; or

(ii) The credit, its means of payment or its guarantees, has been improperly implemented or documented and the lack of validity.

4. Payment of compensation and its effects. The payment of compensation shall be made on an interim basis and on account of its final settlement, to the insured or beneficiary.

The final settlement shall take place (i) after all recovery or re-payment arrangement means have been exhausted, (ii) once the debtor’s final insolvency has been legally determined, or (iii) if the Managing Agent agrees that the claim is uncollectible.

5. Effects of payment of compensation:

a) The Managing Agent shall automatically subrogate in the economic rights of the claim indemnified, including interest, guarantees and any other rights derived there from it, exercising the State’s rights over the credit.

b) The Managing Agent shall become representative of the Insured in the non-covered part by FERGEI insurance. The agreements signed under this representation, shall be fully opposed to Insured, and binding on the latter.

c) In any case, the Managing Agent shall have the address of the collection proceedings and the Insured shall follow all its instructions in this regard.

6. Cost of insurance: The parties will stipulate the remuneration of coverage in compliance with the guidelines laid down by the European Union, and taking into account, among other criteria, management costs and equivalent insurance market practices compatible with the internal market.

Such remuneration may not exceed 20% of net premiums, and shall be both calculated as the result of the aggregation of a fixed tranche and a variable tranche, and reviewed three years after the issuance of the first coverage by the Managing Agent.

In addition, Managing Agent may also pass on the costs of studying the analyses of applications for coverage. The Risk Committee must approve the rates.

7. Risks Committee. Furthermore, the Managing Agent, the funders and the CPPA itself, also should take part in this Commission composed of members of the Ministry of Industry, Finance, Economy and Energy. There will also be a vowel regarding the Insurance Compensation Consortium, FERGEI Administrator, prior to the agreement signed in November 6, 2020.

The Committee shall meet at intervals, which it shall itself determine, based on the operational requirements proposed by the Managing Agent.

In addition to the operational approvals and rate fixing, the Committee will monitor the risk management arising from Electro-Intensive Corporate Consumer, at State expense, throughout their contract. And may also adopt decisions on restructuring or refinancing of insured loans, including those involving debt removals, remissions and / or deferrals, may delegating general decision-making on the Management Agent to certain extend for specific operation or overall limit considered by the Risk Committee at each time.

Finally, the Risk Committee may assess securitisation operations or any other kind, leading to lowering risks or improving profit or portfolio’s risk managed by the Managing Agent.

8. Confidentiality. The Management Agent must maintain the strict confidentiality of all information and data given by the insured, insured solicitors or any other entity involved.

This obligation does not apply upon the requirements made by (i) Risk Committee; (ii) Spanish Court of Auditors; (iii) any other government authority (iv) any other competent judicial or administrative authority.

9. Refund: Finally, the breach of the Corporate Consumer obligations arising from CPPA, guaranteed by FERGEI, will determine the refunding obligations for the aid received within the compensation mechanisms for the charges for the financing of the specific remuneration of renewables, CHP and additional financing in non-peninsular territories regulated in Royal Decree 1160/2020.

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