The Government will not stop the increase in VAT on electricity to 21% due to low electricity prices

MADRID, 27 Feb. (EUROPA PRESS) -

The Minister of Economy, Commerce and Business, Carlos Body, assured this Tuesday that the Government's measures conditional on the price of energy, such as the increase in VAT on electricity bills from 10% to 21% in domestic contracts , "they have to continue their course."

The Government's decision to apply a VAT reduced to 10% on the electricity bill this year was conditional on the price per megawatt hour (MWh) in the wholesale market being above 45 euros. However, if the price of electricity falls below that limit, the VAT will return to 21% the following month.

With one day left until the end of this month, taking into account the OMIE data for this Wednesday, the average wholesale price of electricity for February stands at 41.25 euros/MWh, therefore below the limit established by the Government in June 2021, within the Royal Decree-Law by which urgent measures were adopted in the field of energy taxation and in matters of energy generation, to maintain the reduced VAT.

In Royal Decree 8/2023 of last December, this limit above which the average monthly price of the 'pool' should be for the validity of the VAT was maintained at 10% until next December 31.

Asked precisely if the Executive plans to take measures to prevent this tax from rising, Body has highlighted the good evolution of energy prices and the "differentiating element" of Spain with respect to the rest of the European Union.

"This not only has to do with the recent evolution of climatic conditions, but with the high penetration of renewables, due to the commitment to renewables that is being made and that is already having clear effects," the minister noted during the conference. press release after the Council of Ministers.

The effects of storm 'Louis' have plummeted the price of electricity in recent days, driven by wind generation in the country, accompanied by a significant presence of solar, which has led to three days below the bar of the 4 euros/MWh and to add a large number of hours to zero euros/MWh - this price is not then transferred to the receipt exactly at that price, since there are fixed costs for the electricity consumer, due to tolls, charges and adjustments of the system-.

The application of the 21% VAT would be in arrears, thus, if in February the average pool price remains below those 45 euros/MWh, it will return to that level in the March invoice.

The average of the wholesale electricity market this February indicates that it will be almost a third of the 133.47 euros/MWh of the same month last year and it would have to go back to February 2021 (28.49 euros/MWh), a year before the outbreak of the Ukrainian war, to find a lower level.

The 'pool' does not exactly represent the final amount in the price of electricity for a consumer covered by the regulated tariff, since with the entry in 2024 a new method of calculating the PVPC was adopted, which incorporates a basket of prices at medium and long term to avoid strong fluctuations, without losing short-term price references that encourage savings and efficient consumption.

Specifically, the proportion of linkage with the pool price will be progressively reduced, to incorporate the references of the futures markets, so that these represent 25% in 2024, 40% in 2025 and 55% at from 2026.