The year 2020 will go down in history as the year of COVID-19. It was a year marked by all manner of impacts on health, on the economy and on consumer and lifestyle habits in societies across the world.
The year proved to be a severe test of the ability of businesses to face up to new challenges that were not only unforeseen but which quite possibly had never even been imagined, and for which there were no prior emergency plans. It wasn’t merely a question of taking steps to prevent the transmission of an initially unknown and now only partly understood disease, but rather it was a matter, above all, of keeping people alive and businesses afloat by using the resources available as flexibly as possible to adapt to complicated circumstances, while at the same time trying, as far as was possible, to maintain a more or less normal life, provide a quality of service and ensure that work could be carried out safely.
It was a year that won’t be easy to forget. MRG managed to continue operating through remote work and individual effort, all within a new and different context. And in the midst of all this was the human side to it all, in terms of adapting, of solidarity and of providing help that reached beyond the material conditions of work, and it is something that has been manifest throughout these difficult months.
Restrictions of all kinds on mobility and economic activity remain in place, albeit with a gradual and progressive lessening of restrictions as the spread of the epidemic and the risk to health begin to be brought under control. It is our hope that in 2021 we can turn the page and return to full normality.
The reduction in activity as a result of the measures adopted had a huge impact. GDP dropped by 11% in Spain compared with 2019. Demand for natural gas fell by 9.6%, and other final energy sources suffered similarly sharp falls. Demand for electric power fell by 5.1%, and for oil by 18.5% as a whole, although the sharpest drops in demand occurred in petrol (21% drop) and kerosene (55% drop), as a consequence of restrictions placed on transport, particularly air transport.
The impact on the energy sectors has therefore been extraordinary, and according to the best forecasts demand will not recover until 2022. Full economic recovery will take even longer.
In all, the main problem we face is the sharp drop in revenue decided on by the regulator over the coming years, around 20%, which poses a major strategic and operational challenge that poses consequences in the short and long term alike.
Despite all the difficulties and the limitations imposed by current regulations, and as a result of the work put in to adapt and to ensure jobs are not lost, in 2020 we achieved most of the targets set
Despite all the difficulties, in 2020 we achieved most of the targets set. The work to adapt to COVID-19 and ensure jobs were not lost was a success.
Firstly, and the yearly accounts show, we achieved excellent results, despite the limitations imposed by current regulations. Financial targets were met and the quality of service and safety of operation levels were maintained, due to the company’s commitment to continual internal improvement.
In the current climate and due to regulatory pressure, the strategy needs to be revised, with a focus on priority courses of action. Our strategic priorities remain focused on operational improvements, customer service, corporate governance, energy transition and regulation.
In terms of operations, the focus is on operational excellence, customer service and permanent improvement in management practices, as it has been for years. We continue working to attract new customers, and helping to replace the most polluting fuels in small-scale industry and the residential sector, with the replacement and modernisation of heating installations, and in the commercial sector with complete heating and hot water solutions in buildings, while also providing lower costs to consumers, making it more attractive to switch.
We have made advances in improving customer relations, in terms of regular inspections and readings, and in terms of home operations and reducing the number of complaints, which are two of the challenges where we still have work to do.
Our customer relations are, and should be, increasingly more digital, faster and more accessible, taking full advantage of the possibilities provided by technology to simplify and automate all repetitive processes.
The plan to open new gas refuelling stations for vehicles remains in place within the areas where Madrileña Red de Gas operates, and this will continue over the coming years, with more refuelling stations planned
Plans to open new gas refuelling stations for vehicles remain ongoing within the areas where Madrileña Red de Gas operates, and will continue over the coming years, with more refuelling stations planned for a market that is clearly growing.
We maintained security levels in network operations and continue to make progress in fraud prevention. We are also continuing to reduce wastage, and this year expect to reach levels below that that require payment, as well as notable reductions in LPG wastage.
In terms of regulation, a wastage regulation review is expected, which we have repeatedly stated is inadequate, as it is based on unbalanced technical criteria. We hope that talks with the National Commission on Financial Markets and Competition (CNMC) and with the Government result in a regulation that is suited to the differences that can and do exist between companies in how different networks and customers are structured.
In terms of payment for distribution, we appealed against the CNMC decision, due to the lack of coherence of the memorandum and the unjustified negative impact that the first version of it had on our company. The public consultation process was also clearly insufficient and had manifest room for improvement. We also appealed against the ruling on the adjustment made to payments between companies following the memorandum.
Madrileña Red de Gas considers regulatory stability to be essential in ensuring that companies are free to act in both the short and the long term, make investment decisions, create wealth and employment, and make Spain attractive to investors. Sectorial regulation is nothing less than the specific expression of the principle of legal certainty, which is essential for the life of a company and for the continuance of the rule of law.
Finally, a word on energy transition. The National Integrated Energy and Climate Plan (PNIEC) has defined emission reduction targets for 2030, with resulting changes in the primary and final energy matrices. The PNIEC, which was sent to Brussels in 2019, was revised in early 2020, and for the moment it is the energy policy guideline for the next ten years. However, the basic legal framework for transition should be in the coming Energy Transition Law, which is currently making its way through the Congress of Deputies.
The PNIEC pays detailed attention to the electric sector, as it considers electrification as one of the fundamental tools for changes to the energy matrix in Spain. Gas, however, receives less attention, although in recent months there has been growing awareness of the importance of methane gas in its various forms (natural gas, biogas, biomethane), not just with a view to the next few years, but in the long term, in alignment with views that are spreading across the world. Added to this is the attention being paid to hydrogen as a clean energy vector for the future. MRG encompasses all these elements in its strategic vision, as part of a progressive strategy for companies operating distribution networks to adapt to the role played by different gases as part of a changing energy context. The challenge in the coming years will be to translate this new vision into growth and profitability.
There is a growing awareness of the importance of methane gas, along with the attention being paid to hydrogen as a clean energy vector for the future
In the long term, gas is unreplaceable in a great many industrial processes, and is a perfectly acceptable alternative for other end users, as there are no other technologies that offer the same costs and performances. Moreover, gas networks make it possible for users to be efficiently provided with renewable gas in the short and medium term, and hydrogen in the long term. This potential distinguishes gas from other fuels, and makes it an indispensable complement to electricity.
It is our hope that as a result of the industry’s efforts and talks with public administrations, gas (in its various forms) is afforded the role it deserves in the transition and beyond, guaranteeing the activity of network management in the very long term. The coming Energy Transition Law needs to establish rational and viable objectives for all the affected subsectors, and the regulatory framework must adapt to help ensure those objectives can be achieved. Designing energy transition policy involves dealing with not only technical or purely political questions, but also questions of legal certainty, the certainty of supply and the competitiveness of entire sectors, in terms both of energy sectors and of energy consumers in any of their varieties.
However, alongside policy design, regulation is the other mainstay of legal certainty. We continue to insist that, in this new scenario, regulating industries such as the energy sector needs ongoing and fine adjustment, the success of which depends above all on continuous dialogue with stakeholders.
Finally, I would like to express the company’s gratitude to the shareholders, in particular for their support during what has been such a complicated time over the past year, and for their support in developing this strategic vision, which will form the basis of the successes we hope to achieve in the coming years. And in the same measure, our gratitude extends to the people at MRG, in recognition of their hard work and their dedication in 2020, and for placing their trust in the company in this second decade of its existence.
Pedro Mielgo
Chairman