Circular 2/2025 Of The CNMC And Its Implications For Renewable Gas Production Plants

This article discusses Circular 2/2025 issued by Spain's CNMC, establishing a regulatory framework for connecting and accessing renewable gas production plants (e.g., hydrogen, biomethane) to the gas system. Effective from 1 July 2025, it introduces procedures for connection requests, anti-hoarding measures, transparency obligations, and capacity allocation mechanisms. Key stakeholders include renewable gas producers, grid operators, and policymakers. They need to understand the connection and access requirements, grounds for denial, economic guarantees, and pending regulatory developments. Steps to take include reviewing the Circular, preparing necessary documentation for connection and access requests, ensuring compliance with economic guarantees, and monitoring the CNMC's future resolutions to address unresolved regulatory aspects.

On 16 April 2025, Circular 2/2025, of 9 April, of the Spanish National Markets and Competition Commission ("CNMC"), was published in the Official State Gazette (the "Circular"). This Circular establishes the methodology and conditions for access and capacity allocation in the natural gas system. The Circular will come into effect on 1 July 2025 and repeals Circular 8/2019¹. This Newsletter analyses the application of the Circular from the perspective of the connection and access of production plants of other gases² different to natural gas, focusing on renewable gases (such as hydrogen or biomethane).

Introduction and context

The scarce existing regulation regarding the connection of renewable gas production plants can be found in RDL 14/20223³, which added Article 12 bis to Royal Decree 1434/2002⁴, under the heading connection of renewable gas production plants to transport or distribution grids. This Article, which establishes very general provisions, delegates to the CNMC the approval of a specific procedure for managing connections of renewable gas generation plants.

The Circular aims at two main objectives. On the one hand, to review access mechanisms to gas infrastructures and introduce anti-hoarding measures applicable to renewable gas production plants. On the other hand, to update and adapt connection, access, and capacity allocation conditions to the new needs arising from decarbonisation and the promotion of renewable and low-carbon gases.

Thus, the Circular aims to: (i) establish general principles and rules for connection and access procedures for gases that can be injected into the grid without mixing (such as biomethane) and those requiring mixing (such as hydrogen); (ii) establish transparency and publicity requirements for transport and distribution grid operators regarding (among other things) available capacity in their grids; and (iii) specify congestion management and anti-hoarding mechanisms applicable to the production plants of such gases.

Based on Article 12 bis of Royal Decree 1434/2002 and prior to the approval of the Circular, the CNMC approved its Resolution of 19 April 2024, which established the management procedure for connections of biomethane generation plants to the transport or distribution grids (the "Resolution of 19 April 2024"). In this sense, to this date the CNMC has not approved specific procedures applicable to other renewable gases, such as hydrogen.

Regarding the Resolution of 19 April 2024, the CNMC is processing a new resolution to replace it, aiming to establish a procedure for managing requests and procuring connections for production plants of other gases in general (whether they require mixing or not, renewable or otherwise), in line with the Circular. According to its Justification Report (Memoria Justificativa)⁵, this is expected to come into effect on 1 July 2025.

Although the Circular provides a necessary regulatory framework to ensure legal certainty in the connection and access of renewable gas production plants to the gas system, some key aspects for producers of these gases remain to be developed. As the injection of such gases into the gas system increases, it is likely that this regulatory framework will need to be revised to adapt it to the sector's new needs.

Purpose, scope of application and subjects with access and connection rights

The purpose of the Circular is to regulate the procedure and conditions for third-party access and connection to transport and distribution facilities in the gas system, including within its scope facilities subject to third-party access under Article 60 of the Law on the Sector of Hydrocarbons ("LSH")⁶. Additionally, the Circular includes owners of production plants of other gases (such as renewable gases) as new subjects with access and connection rights to the gas system facilities (Article 4 of the Circular).

Connection of renewable gas production plants

The main novelties introduced by the Circular regarding the connection of these plants are:

• Connection request: The connection request for the respective production plant must be submitted (i) through the online platforms for requests and procurement managed by the grid operators; and (ii) with the minimum content specified in Article 31 of the Circular (including, among other data, the identification of the renewable gas production plant or the requested connection capacity (in kWh/d)).
• Grounds for denial of connection: Connection may only be denied in the following cases: (i) lack of available capacity; (ii) non-payment of agreed amounts in contracts for the construction of connection facilities related to the renewable gas production plant; (iii) insufficient deposited economic guarantees; or (iv) if the connection facilities related to the production plant could cause technical harm or jeopardise the operation of the gas infrastructures (Article 5.3).
• Connection procurement: Once the connection request is accepted by the grid operator, owners of renewable gas production plants may procure their connection via the platforms for connection requests and procurement (Article 14). For connection purposes, the Circular differentiates between gases that do not require mixing (such as biomethane) and those that do (such as hydrogen):
  • Gases not requiring mixing: Acceptance of the connection request will depend on the approval of the system's technical manager (i.e., Enagás GTS, S.A.U.), which must analyse the compatibility of the resulting gas flow composition with the system's and users' facilities. In particular, as to whether there is a possibility of gas inflow to interconnected upstream grids or reverse flow. Connection requests for this type of gas will follow a chronological priority criterion.
  • Gases requiring mixing: Acceptance of the connection request, also subject to the system's technical manager's approval, will be decided annually through a competitive procedure to be developed by the CNMC. Such procedure will include three phases: (i) determination and publication by the system's technical manager of the conditional connection capacity⁷ available by areas for the next five years, as well as applicable conditions and the probability of their application; (ii) submission of requests by promoters, which will be ranked based on project maturity⁸; and (iii) communication by grid operators of the acceptance or denial of the connection request and, if applicable, the conditional connection capacity.

To provide approval, regardless of the type of gas, the system's technical manager must analyse the flow rate and quality of the gas circulating in the gas system, its proper functioning and safety.

• Connection contracts: Connection contracts for renewable gas production plants will be signed between the owners of these plants and the owners of the grid where the connection will take place (Article 15 of the Circular). These contracts must include the minimum content specified in Article 17 of the Circular, including: (i) the contract reference number (necessary for subsequent access requests); (ii) identification of the parties and production facility [9]; (iii) the assigned conditional connection capacity (in kWh/d); and (iv) the technical conditions that could cause a reduction in conditional capacity and the probability of their application. The CNMC may establish a standard connection contract model.

Access of renewable gas production plants

The Circular introduces the following new aspects regarding access for these plants:

• Service for access from renewable gas production plants: Article 9.1.i) of the Circular defines the new individual service of "entry to the Virtual Balancing Point from production plants of other gases", allowing gas transfer from a production plant's connection point to the Virtual Balancing Point ("VBP")¹⁰. Access capacity for this service will be offered through individual conditional capacity products (Article 11.2 of the Circular).
• Access request: The access request must (i) be submitted through the system's technical manager's online platform for requests and procurement; and (ii) comply with the minimum content specified in Article 32.3.c) of the Circular (including, among other data, the start and end date of the product – allowing for indefinite product procurement – or the connection contract reference number).
• Grounds for denial of access: Article 5.1 of the Circular specifies the only reasons for denying an access request: (i) lack of available capacity during the requested contractual period; (ii) non-payment of fees, charges, or imbalance surcharges; (iii) insufficient deposited economic guarantees; (iv) apparent inability to operate in the gas system, which has resulted or could result in significant technical or economic harm to the gas system; or (v) in the event of congestion in necessary infrastructures.
• Procurement of access to the VBP: Independently, plant owners must procure the entry service to the VBP through the online platform for requests and procurement, subject to the system's technical manager validating that sufficient economic guarantees have been provided. Article 19.3 of the Circular clarifies that (i) commercial transactions for gas ownership can occur at the VBP regardless of the entry or exit point; and (ii) all gas delivered to the VBP is freely exchangeable. Article 25 (i) specifies that the CNMC will approve a standardised access contract model via resolution, and (ii) includes its minimum content. Note that non-payment of fees and charges by the user will result in partial or total suspension of access to the gas system facilities.

Capacity allocation procedures

Article 28 of the Circular introduces the fundamental principle that procuring the connection grants the right to procure access to the grid, up to the maximum value of the conditional capacity specified in the connection contract¹¹. When it becomes necessary to reduce assigned conditional capacity, the available capacity at the grid will be distributed based on the chronological order of accepted connection requests. Enagás GTS, S.A.U. must develop a procedure to manage such reductions.

For calculating conditional capacity for connection, factors such as the following must be considered: (i) the quality ranges of the gas produced by the plant; (ii) the quality of the gas circulating in the grid; (iii) the connection capacity in use and its degree of utilisation; or (iv) the capacity calculation criteria established in the CNMC Resolution of 10 November 2022¹² (Article 39 of the Circular).

Other relevant provisions

The Circular also introduces the following relevant provisions:

• Transparency and publicity regarding connection: Depending on the type of gas, the duty of transparency and publicity must be fulfilled by: (i) the system's technical manager, in the case of gases requiring mixing, who must publish available connection capacity by areas; or, alternatively, (ii) transport and distribution grid owners, in the case of gases not requiring mixing, who must publish information on available connection capacity by sections of the corresponding infrastructure.
• Secondary market for access capacity: Entry capacity to the VBP is excluded from the secondary market (Article 41 of the Circular).
• System's technical management regulations: Article 42 of the Circular establishes that the CNMC will develop the system's technical management regulations within its competence.
• Supervision: Article 43 of the Circular states that the CNMC will be responsible for (i) supervising the correct application and implementation of the Circular; and (ii) resolving any conflicts arising from it.

Congestion management and anti-hoarding mechanisms

Article 50 of the Circular outlines measures to prevent capacity hoarding and alleviate congestion in the connection and access of renewable gas production plants. These measures can be summarised as follows:

• The plant's relinquishing of its assigned conditional capacity, provided that the costs incurred or firmly committed by the grid operator related to the connection up to the time of the relinquishing notification have been paid.
• Loss of the right to use the connection in cases of unused assigned conditional capacity¹³ for a period to be determined by the CNMC¹⁴.
• Release of procured conditional connection capacity in cases of underutilisation, except for technical unavailability of the grid. The CNMC will develop the detailed calculation and application procedure for this measure.

Economic Guarantees

Article 57 of the Circular regulates the economic guarantees to be deposited for the connection of renewable gas production plants:

• Applicants for connection of these plants may freely agree with grid owners on the terms of connection payments and related economic guarantees (which must be included in the connection contract), although the CNMC may establish minimum requirements.
• In the absence of an agreement, the economic guarantees (i) will amount to the accepted connection budget not previously paid by the plant owner; and (ii) must be provided within a maximum of 30 business days from the grid owner's notification that it obtained the administrative authorisation for the construction of the connection.
• The economic guarantees will be progressively returned to the owner of the plant, in accordance with the payment schedule outlined in the connection contract or after relinquishing the connection contract, once the costs incurred by the grid operator have been paid.

Pending developments

The Circular provides a necessary regulatory framework to ensure legal certainty in the connection and access of renewable gas production plants to the gas system. However, some key aspects remain to be developed, which are crucial for producers of these gases. Their regulation will allow a full assessment of the Circular's implications for these plants.

These aspects include: (i) the approval by the CNMC of the competitive procedure applicable to the connection procurement of production plants of gases requiring mixing; (ii) the approval by the CNMC of the standardised access contract for entry to the VBP, as well as the potential approval by the CNMC of a standardised connection contract for renewable gas production plants; (iii) the procedure for reducing conditional capacity, to be developed by the system's technical manager; (iv) the development of the system's technical management regulations by the CNMC; (v) the determination of the timeframe for considering unused conditional capacity, also by the CNMC; (vi) the detailed procedure for calculating and applying the release of conditional capacity due to underutilisation, to be approved by the CNMC; and (vii) the possible establishment by the CNMC of minimum requirements for economic guarantees to be deposited for the connection of these plants.

Footnotes

1. Circular 8/2019, of 12 December, of the CNMC, which establishes the methodology and conditions for access and capacity allocation in the natural gas system.

2. The Circular defines other gases as "gases that meet the requirements established by current regulations to be injected into the natural gas grid, different to fossil-origin natural gas and which may or may not require mixing with the gas already circulating in the grid into which they are injected". This definition includes renewable gases, the subject of this Newsletter.

3. Royal Decree-Law 14/2022, of 1 August, on economic sustainability measures in the transport sector, scholarships and study grants, as well as measures for energy savings, efficiency, and reducing dependency on natural gas.

4. Royal Decree 1434/2002, of 27 December, regulating activities related to the transport, distribution, commercialisation, supply, and authorisation procedures for natural gas facilities.

5. https://www.cnmc.es/sites/default/files/editor_contenidos/Energia/Consulta%20Publica/2_RDC_DE_006_25_Memoria.pdf

6. Law 34/1998, of 7 October, on the Sector of Hydrocarbons. Article 60.3 of the LSH ensures third-party access to the basic grid facilities and transport and distribution facilities of the gas system.

7. The Circular defines conditional capacity in Article 3.d) as: "firm capacity that involves transparent and predefined conditions to allow access from production plants of other gases to the virtual exchange points, i.e., the maximum allowable flow rate provided for in Article 12 bis of Royal Decree 1434/2002, subject to conditions established in the corresponding connection contract".

8. Project maturity will be determined based on the following critera in order of priority: (i) the project has a signed connection contract; (ii) the renewable nature of the gas to be produced; (iii) the project's economic aspects, including the acquisition status of the land for the plant, commitments to sell the produced gas, and the progress of the environmental permit process; (iv) the connection request is in process as of the Circular's entry into force; and (v) the project has been awarded public aid.

9. Connection contracts are linked to renewable gas production plants and cannot be transferred to third parties separately.

10. According to Article 3.1.e) of the CNMC Circular 2/2020, of 9 January, which establishes natural gas balancing rules, the VBP is defined as the virtual exchange point in the transport grid where users can transfer gas ownership.

11. Access may be contracted by more than one party, provided that the total conditional capacity does not exceed the conditional capacity established in the plant's connection contract.

12. Resolution of 10 November 2022, of the CNMC, establishing technical management regulations for the gas system concerning programming, nominations, allocations, balances, management and use of international connections, and self-consumption.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.