Certain of our renewable energy facilities are also subject to compliance with the mandatory Reliability Standards promulgated and enforced by the North American Electric Reliability Corporation (“NERC”) and approved by FERC. Violation of such Reliability Standards can result in civil penalties or other enforcement measures to ensure compliance under the FPA assessed to the owners and/or operators of such renewable energy facilities. In the United Kingdom, Canada, Chile, Uruguay, Portugal and Spain, the Company is also generally subject to the regulations of the relevant energy regulatory agencies applicable to all producers of electricity under the relevant feed-in tariff or other governmental incentive programs (collectively “FIT”) (including the FIT rates); however, it is generally not subject to regulation as a traditional public utility, i.e., regulation of our financial organization and rates other than FIT rates.
As the size of our portfolio grows, or as applicable rules and regulations evolve, we may become subject to new or modified regulatory regimes that may impose unanticipated requirements on its business as a whole that were not anticipated with respect to any individual renewable energy facility. For example, the NERC Reliability Standards approved by FERC impose fleetwide cyber security requirements regarding electronic and physical access to generating facilities in order to protect system reliability; such requirements expand in scope after the point at which a single owner has more than 1,500 MW of reliability assets under its control in a single connection and expand again once the owner has more than 3,000 MW under construction. Such future changes in our regulatory status or the makeup of our fleet could require it to incur materially higher costs which could have a material adverse impact on its financial performance or results of operations. Similarly, although we are not currently subject to regulation as an electric utility in the foreign markets in which we provide our renewable energy services, our regulatory position in these markets could change in the future. Any local, state, federal or international regulations could place significant restrictions on our ability to operate our business and execute our business plan by prohibiting or otherwise restricting the sale of electricity by us. If we were deemed to be subject to the same state, federal or foreign regulatory authorities as traditional utility companies, or if new regulatory bodies were established to oversee the renewable energy industry in the United States or in our foreign markets, our operating costs could materially increase, adversely affecting our results of operations.
The legal framework applicable to the renewable energy facilities located in Spain includes the following laws and ministerial orders promulgated thereunder:
Royal Decree-Law 9/2013, dated July 12, 2013 (the “Royal Decree-Law 9/2013”), containing emergency measures to guarantee the financial stability of the electricity system;
Law 24/2013, dated December 26, 2013 (the “Electricity Act”); and
Royal Decree 413/2014, dated June 6, 2014 (the “Royal Decree 413/2014”), regulating electricity production from renewable energy sources.
The Electricity Act recognizes some rights for producers with facilities that use renewable energy sources, such as priority in access to offtakers and transmission and distribution networks and entitlement to the recovery of certain costs. Under the Electricity Act, renewable energy electricity producers are required to offer to sell their energy through the market operator, to maintain the plant’s planned production capacity (including power lines connecting to transmission or distribution networks) and to contract and pay fees to transmission and distribution companies in order for their power to be fed into the grid.
The Electricity Act and Royal Decree 413/2014 require electricity generation facilities to be entered on the official register of electricity production plants maintained by the Ministry for the Ecological Transition. To receive cost reimbursement, renewable energy facilities are required under the Electricity Act and Royal Decree 413/2014 to be listed on a new register entitled the Specific Payment System Register, Registro de Regimen Retributivo Especifico. Unregistered plants will only receive the pool price.
Royal Decree-Law 9/2013 introduced a change in the payment system applicable to new and existing electricity production facilities using renewable energy sources to guarantee the financial stability of the electric system. The purpose of Royal Decree-Law 9/2013, which became effective on July 14, 2013, was to adopt a series of measures to ensure the stability of the electric system and to combat the shortfalls between electricity system revenues and costs, referred to as the tariff deficit. Royal Decree-Law 9/2013 established an entirely new remuneration system, abolishing the remuneration system based on a regulated tariff applicable to electricity production facilities using renewable energy sources (including facilities in operation at the time that Royal Decree-Law 9/2013 became effective).
Prior to the adoption of Royal Decree-Law 9/2013, electricity production facilities using renewable energy sources received a feed-in tariff tied to their electricity produced according to their power output. According to Royal Decree 413/2014, producers receive: (i) the pool price for the power they produce and (ii) a payment based on the standard investment cost for