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The implementation of guarantees in the renewable energy sector: will the public administration open the Pandora's box?

| News | Corporate Law and M&A

Ignacio Blanco provides the keys on the execution of guarantees in the renewable energy sector

Order ETU/315/2017, of 6 April, which regulates the procedure for allocating the specific remuneration scheme in the call for tenders for new installations for the production of electricity from renewable energy sources, called for under Royal Decree 359/2017, of 31 March, is currently on the lips of all the players who have something to say in the renewable energy sector in Spain either because they went to the "auction" or because they did not.

The issue is simple: by virtue of this order, the Government established the allocation mechanism of the specific remuneration scheme for new electrical energy production facilities from renewable energy sources located on the Spanish mainland. In particular, the requirement for the financial guarantee provided for in Article 16 thereof (60 euros/kW for the installed capacity requested) is key to this procedure.

The rule being referred to provides for different cases in which the guarantee will be partially cancelled or enforced as appropriate (Articles 17(6) and (7), 18(3) and (4) and 19(10) and (11)).

We find that public administration plays a double role (understood in a broad sense). It is at the same time part of the process of promoting this type of installation because, in a very high percentage, this process consists of obtaining permits, licences and authorisations issued by bodies of the various territorial administrations (state, regional and local bodies may be affected in the same project). It is also a judge in cases of enforcement of the guarantee referred to above.

At this time, when there is news about the commencement of enforcement proceedings, the position of a developer who sees the enforcement of his guarantee at risk is complicated. With the law in hand, the administration is not empowered to foreclose on collateral: it must do so if the milestones set out in the applicable regulations have been breached.

In the face of the execution of these guarantees, the administered will not remain with its arms crossed and will try to make use of its rights; one of these rights is to claim from the subjects intervening in the process of promoting their installations the responsibility that they may have by law. This will lead the administered party to consider claiming from the competent administrations if he suffered unjustified delays in the processing of his administrative files which would mean on the other hand, claiming a fair compensation for suffering a damage that the administered party does not have the legal duty to bear, caused precisely by the inaction of the administration.

Experience has shown us and continues to show us that obtaining an environmental impact declaration, an administrative construction permit (prior or final) or a municipal licence is a challenge that requires a great deal of patience; not to mention obtaining sectorial authorisations such as, for example, those that may be required by a wind farm due to the easements of a more or less nearby airport.

The promoter who in that obstacle course has seen how one of the hardest pitfalls was the inaction of the public administration is now facing the fact that other bodies of that same administration can inflict millionaire losses on him.

The current scenario raises a series of questions whose answers are very complicated and will depend on the specific case. The first one is whether an administration not only can but must execute the guarantees; in the sector there is unanimity that the execution of guarantees is something that would help to put order in the measure in which many projects that are known to be "crazy" from their beginning would not even be started if there was evidence that there is a certain risk of execution of guarantees. Having said that, this implementation must be based on eminently objective criteria or the particular circumstances of the promoter and its project may be taken into account. The second is whether the administration's inaction in enforcing the guarantees would be in accordance with the law in those cases where the reason for such inaction was to avoid a claim for the administration's liability. The third is what can be done in this scenario of conflicting forces by a developer who has decided not to use the procedure for assigning the specific remuneration system regulated in the Order mentioned above because of the risk involved in executing its guarantees if, when the time comes, it sees that the administration chooses not to act in order to avoid the liability claims mentioned above which, prima facie, will be the option chosen by the developers who see their guarantees executed.

The answer to the above questions is neither simple nor linear: it will depend on the specific case, the vicissitudes of each project and what has been done in each case. It will become a question of proof so it is easy to infer that in the end it will be the courts and tribunals that will end up elucidating many of these issues. More complicated is the answer for those who did not go through the allocation procedure and can now see that their competitors come out unscathed after failing to meet the established milestones if they choose not to execute guarantees as has been a (sad) tradition in the renewable sector.

What is certain is that the execution of guarantees will be the trigger for a reaction from those executed, who will most likely have arguments to put up a hard fight; not perhaps before the body that will execute those guarantees, but before other administrative bodies that may be facing numerous claims at this time (although this would give rise to a long discussion on what in a wind or photovoltaic project is the concept of direct damages, loss of profits, etc.). In short, something open, a new challenge for a necessary and strategic sector in our country.

You can see the article in Cinco Días.

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