VAT on electricity in Spain has been temporarily increased from 10% to 21% from 1 March. This happened after the wholesale market price averaged less than €45 per megawatt hour (MWh) in February. This is the ceiling set in the Royal Decree on urgent measures. Spanish consumer organisations want the lower VAT rate on electricity to be introduced permanently.
Last year, the Council of Ministers approved that VAT on electricity would increase from 5% to 10%. And that this rate would be maintained until the end of 2024. However, this was subject to the condition that MWh prices on the wholesale market would remain high. Specifically, this is above €45/MWh. The production of renewable energy, especially wind energy, was very high in February due to several storms. As a result, electricity prices fell, the average pool price in February was €40/MWh. As a result, the VAT rate is rising.
Consumer organisations want a permanent reduction in VAT on electricity
Spanish consumer organisations are urging the government to maintain a low VAT rate for electricity. First of all, Facua-Consumers in Action has asked for the VAT reduction to be made “permanent”. And not, as is currently the case, a commitment to a temporary reduction. Which depends on the price per megawatt hour. Facua stresses that the measure “cannot be temporary and must be disconnected from the ups and downs of the market. It is fundamental that the reduced tax is permanent. The decrease in revenue for the public purse as a result of this reduction in VAT can be offset by an increase in direct taxes. And especially for those who earn the most – large companies – so that essentials such as health and education are safeguarded.”
In addition, the Spanish consumer organisation OCU demands that the government keep VAT on electricity at 10%, because “it is a basic necessity for consumers”. OCU points out that other countries such as Belgium and Portugal have agreed to apply an even lower VAT, of 6%.
Account Rises
According to OCU’s calculations, an average household with the regulated tariff – the so-called PVPC – with a capacity of 4.6 kW and a monthly consumption of 292 kWh paid €51.64 in February. In March, the bill will amount to €56.81. Consequently, the organisation estimates that the benefit of the lower electricity price will disappear due to the VAT increase. In fact, it would mean an increase of €62 per year for the average user.
New system for energy prices
Although energy prices on the daily market have fallen significantly, mainly due to the revenues from renewable energy sources, the regulated tariff has fallen less. This is because the new calculation methodology that was introduced with the arrival of 2024 is no longer entirely dependent on the daily market. It is 25% determined by the futures markets. With this ‘adjustment’, the PVPC for the month of February increased by 14% in this particular month*.
The new system therefore disadvantages households with PVPC, because decreases on the daily market are not quickly passed on. To be precise, with the old calculation that did not include this installment adjustment, the PVPC invoice would be €47.10 with 10% VAT. And €51.8 with 21% VAT. In other words, the adjustment of the futures market this month has increased the bill by 10% (€4.53 euros).
