VAT on electricity bills will rise from 10% to 21% on March 1 as the price of electricity falls below €45. Due to the fall in the price of electricity, the VAT percentage increases. But what does this increase mean for your bill?
The month of March starts with a significant change for the electricity bill. Value added tax (VAT) on electricity bills for household contracts will return to 21% in March due to lower electricity prices in February, which caused the wholesale market to close below the €45 per megawatt hour (MWh) mark on average.
Electricity price under border of 45 euros MWh
If this limit is not met, VAT will increase from 10% to 21%. The monthly average of €45 per MWh of the daily electricity market as a threshold for charging reduced VAT was laid down in June 2021 in the Royal Decree establishing urgent measures in the field of energy taxation and energy generation, in order to maintain the reduced VAT.
At the end of last year, the Spanish government decided to gradually increase the existing tax on electricity. For example, VAT for this year was increased from 5% to 10%.
Storm lowers energy price
Due to the effects of the storm Louis, the price of electricity has plummeted in recent days. Not only through the generation of wind energy, but also through the solar energy generated. For three days, the price was below €4/MWh and for a large number of hours at zero euros/MWh. On 28 February, the average wholesale electricity price for February stood at €42.43/MWh. There seems to be a real chance that the monthly average will continue to fall below €45/MWh. As a result, 21% VAT is charged again.
Here’s how VAT increase on electricity will affect your bill
With 21% VAT, the increase in electricity bills will be around €7.48 for the month of March. In January and February, it was around €4.56. The annual invoice with 21% VAT will therefore increase by around €90 per year. This is according to calculations by the company Selectra, which was reported by the Spanish newspaper Europa Press. Those who receive the social electricity bonus and are recognised as vulnerable or very vulnerable, with a risk of social exclusion, will continue to pay 10% VAT.
VAT varies with electricity price
As a result of the price increase in June 2021, VAT on electricity bills could be adjusted to a reduced rate. This was in line with the Royal Decree establishing urgent measures in the field of energy taxation and energy production.
