The Government has sent a new version of the draft Royal Decree regulating data centres to the Council of State, known last night.
Among the changes that soften the text, we highlight: 1) the Royal Decree will now apply to data centres with a consumption of 10 MW or more (compared to 1 MW in the initial draft), which exempts smaller centres, primarily aimed at SMEs; 2) the maximum age of the associated renewable plants (certificate of commissioning) is extended from 18 to 36 months, and; 3) a transitional period of five years is introduced in which the renewable coverage requirement drops from 80% to 60% until 31 December 2028 and to 70% in 2029, 2030, and 2031.
However, the hourly correlation (hourly accreditation) is maintained, which continues to be the most costly requirement. Although the required percentage is lower, the promoter will have to oversize the renewable generation and install batteries to cover the hours without solar production.
Furthermore, to benefit from the transitional period, data centres must mandatorily adhere to an Automatic Power Reduction System (SRAP), which allows the system operator to disconnect them automatically if necessary. According to the sector, this would imply frequent use of diesel generators (CO2 emissions and noise, especially in centres close to residential areas).
As for the timeline, the submission to the Council of State reflects the Government's intention to approve the Royal Decree before the general elections on 29 November, as announced by the Minister for Digital Transformation, Óscar López.
While we consider the changes to be positive, they appear equally insufficient: they reduce the scope of the regulation and soften some parameters, but do not modify the main cost factor, the hourly correlation, which was precisely the adjustment one would expect at the last minute. The extension of the age to 36 months facilitates the use of existing renewable generation, and the lower percentage required in the transitional period reduces the size of the necessary installations. However, access to the transitional period is conditional on the SRAP, which introduces an operational risk (interruptibility) that may be poorly compatible with projects with hyperscaler clients.
Regarding the timeline, the submission to the Council of State is a preliminary step towards final approval and reinforces the likelihood that the Royal Decree will be approved before the elections on 29 November. The Council of State could still introduce modifications to the text.
Regarding Merlin Properties, we maintain our estimate that approximately 73% of the MW projected in the 3 phases of the MEGA plan would be viable (we remind that 25% of the projected capacity is located in Lisbon, Portugal, outside the scope of this regulation). Merlin Properties' projects comfortably exceed the 10 MW threshold, so the change in scope does not benefit them, and we believe that the greater flexibility in age and percentage could represent a slight positive bias, which we will not incorporate until we know the final text. On the other hand, the risk of relocating investments to Portugal could be a favourable factor for Merlin Properties' Lisbon platform.
We reiterate our recommendation to OVERWEIGHT with a target price of €17.60 per share.
