Moody's: Spanish electricity system heads toward sustainability, as electricity tariff deficit debt falls

Electricity tariff deficit debt in Spain is decreasing and heading towards sustainable levels by 2018-19, says Moody's Investors Service. The lack of new deficits in 2014 and paying down of outstanding deficits, has cut outstanding electricity tariff deficit (ETD) debt by 7% to EUR26.9 billion in 2014 from EUR28.8 billion in 2013.

"Cumulative electricity tariff debt could fall below 100% of regulated revenues by 2019. Electricity prices in Spain soared by more than 60% over the last few years. The 2008 downturn mainly drove a consumption decline", observes Antonio Tena, a Moody's Assistant Vice President - Analyst and co-author of the report.

"The current legal framework strongly protects the commitment to reach electricity system sustainability. Ongoing surpluses would significantly contribute to the system's deleveraging. Legal reforms are starting to yield results in taming electricity tariff deficits", notes Mr. Tena.

Moody's says reduction measures such as costs cuts on regulated activities have significantly contained system costs. These cuts, combined with the addition of new sources of revenues (such as corporate taxes), are re-balancing the system. Policymakers may implement regulatory changes to reduce prices for end users, with the aim of helping them keep more of their disposable income. In a standard end user's electricity bill, more than half of the payment goes toward system costs. Because of this, a significant reduction in the regulated part of the end user's electricity bill could jeopardise ETD repayments.

System revenues have grown in recent years, while costs are declining, driven by the downward adjustment on public subsidies to renewable energy to EUR6.8 billion in 2014 from EUR9.3 billion in 2013 (a 27% decrease).

Moody's says a larger-than-anticipated surplus in Spain's electricity sector is credit positive for electricity tariff deficit (ETD) securitisations because it implies that amortisation will be faster than scheduled. Following very high deficits in recent years, the prospect of no deficits for the next few years is positive for outstanding ETD transactions, because all ETD debt, regardless if such debt is generated in the past or will be in the future, ranks pro rata in the priority of payments in the electricity sector.