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Spain to cut energy taxes and cap gas prices to address rising electricity costs

Friday, 17 September 2021

On Tuesday (14 September 2021), Spain's government passed emergency measures in a bid to take a hold of rising household electricity costs through redirecting fiscal benefits from energy companies to Spanish customers and capping increases in gas prices. 

Wholesale electricity prices in Europe have been on the rise having doubled within a year being attribute to varying factors such as rising carbon prices and limited gas supplies. In the first broad response to this, Spain plans on limiting power utility profits from surging electricity prices. The Spanish government plans to channel approximately 2.6 billion euros ($3.1 billion) from companies to consumers in the next six months.

Spain’s minister for ecological transition, Teresa Ribera, told a news conference that the measure would remain in place until the end of March 2022, when natural gas prices are expected to stabilise after consumption falls from winter peaks.

Wholesale electricity prices have surged to record highs in recent months and triggered outcries from consumer associations across Spain. Spanish news agency Europa Press has reported that electricity costs are more than 250% higher than one year ago. Yesterday (16 September 2021) the average weighted intraday price was over 170 EUR/MWh.

Analysts at RBC Capital Markets estimated that leading utility firms Iberdrola and Endesa would take revenue hits of about €1bn as a result of the measure. The impact on Naturgy and EDP would be about 200 million and 65 million euros respectively, RBC said.

In parallel, Spain plans on using an extra 900 million euros it expects to raise by auctioning carbon emission permits this year to reduce bills, citing high market prices as the reason for the additional funds.

The high demand for natural gas has accounted for much of the recent increase in European power prices and Spain will limit regulated gas price increases at 4.4% in the third quarter compared to forecasts for a 28% hike. 

Ribera said the measures under the “shock plan” would slash the average consumer’s monthly bill by 22% until year-end.

Though companies will have to shoulder the higher costs while the measures remain in place, they will be reimbursed through higher tariffs later, meaning the overall cost to them will be neutral, the ministry said.

Spain's nuclear power association said that the new measures would make nuclear power plants financially unviable and potentially provoke a total shutdown of the industry. 

Prime Minister Pedro Sanchez announced on Monday that a special electricity tax would drop to 0.5% from 5.1% until the end of the year, while a reduced VAT rate and the suspension of a 7% generation tax would be extended until January. Altogether, the measures will reduce government revenues by around 1.4 billion euros in 2021.

According to Reuters, Italy is also looking at energy sector reform to combat an expected 40% increase in retail power prices. Earlier this week, Greenfact also reported electricity price concerns in Poland where power utilities were planning on also seeking a 40% price increase which was shut down by Prime Minister Mateusz Morawiecki.

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