The process of decarbonization of the Spanish economy in order to meet the European objectives for reducing CO2 emissions is hindered by high taxes on electricity. Spain appears as the country in the European Union (EU) with the highest taxes and taxes (including VAT), closely followed by Portugal, Germany and Austria, with levels around 20 cents per kilowatt hour (KWh).
Sources from the energy sector consulted by La Información point out that the current tax system prevents greater implementation of electrification in certain sectors that still depend on fossil fuels. Currently, gas has rates that are below 4 cents/KWh, that is, five times less than those of electricity and creating a comparative grievance, according to a report by the Regulatory Assistance Project (RAP).
The debate about whether or not to lower electricity taxes is not new, but it is gaining strength at a time when governments are asking both domestic users and companies and industry to be more energy efficient. The same sources indicate that it does not make sense for electricity to continue to bear a VAT of 21%. From the Organization of Consumers and Users (OCU) they demand a reduced VAT as it is understood as a basic service. Countries like Portugal or Belgium already do it this way.
How many taxes are there on electricity?
There is also the Tax on the Value of Electrical Energy Production (IVPEE) of 7%. This is charged to the generators, however, the companies end up transferring it to the final consumer and, therefore, to the electricity bill. In Spain there is also the Special Electricity Tax (IEE). Thus, there are three types of taxes and levies: special taxes on electricity, gas and other fossil fuels; taxes on electricity and gas only; and an additional value-added tax on electricity production.
The special tax on electricity is an ‘ad valorem’ tax (depending on the value of the fuel) of 5.11% – reduced until June -, while coal and gas pay a tax of 2.34 euros per megawatt hour ( MWh). In the case of electricity, the tax is used to introduce a time-of-use component and the rate ranges from 6 euros/MWh in the off-peak period to 133.10 euros/MWh in the peak period. It mainly covers subsidies for renewable energy and compensation for non-island territories. For its part, an ‘ad valorem’ tax of 0.14% is also applied on gasoline to cover regulatory costs and an additional specific value-added tax of 7% on the production value.
Electricity, the most profitable way to decarbonize?
In this sense, the Alliance for Electrification – formed by Euroelectric, SolarPower, Wind Europe, the European Climate Foundation and the European Copper Institute – defends that electricity is, “by far”, the most profitable way to promote the transition in all economic sectors, both transport, heating and industry. Therefore, it asks the EU for greater support with a change in taxation that encourages its momentum. “The time has come for energy taxation to stop being an obstacle and become a driver of the energy transition,” defends this alliance.
Likewise, it also sees the need to review the Energy Tax Directive (ETD) to put an end to “tax discrimination that favors fossil fuels over electricity.” “When examining the data comparing levies and taxes between gas and electricity, a gap is observed that disproportionately favors gas over electricity. A reformed ETD is now the condition to support consumers to invest in electrification, reduce their electricity bills and, at the same time, decarbonize our economies,” says Julie Beaufils, general secretary of EuropeOn (European Association of Electrical Contractors), another member of the alliance.
Electrical solutions are the most expensive for users.
On the other hand, associations complain that the most sustainable solutions, as well as those that provide flexibility (thermal and electricity-based), are the most expensive for users. “Active consumers who bring flexibility to the grid by storing electricity with storage technologies or electric vehicles continue to be hampered in many Member States by being taxed twice when they feed electricity back into the grid. As long as this continues, the energy transition will be a battle impossible uphill,” they explain.
Currently, in Spain, according to data from the Association of Electric Energy Companies (Aelec), the degree of electrification of the economy is below the levels of 2019, before the covid-19 pandemic. The employers’ association, which includes Iberdrola, Endesa and EDP, emphasizes that with the latest data corresponding to the first half of 2023, the electrification index is at 22.4%, “which shows the need to intensify policies “oriented to the electrification of final demand.” This data represents a clear decrease compared to the 25.6% electrification rate in 2020.
