VAT on electricity and gas returns to 21% as of June 1. That’s the news of the day, and before you put your hands on your head thinking about your next bill, breathe, because there is a lot of fabric to cut here. You’re probably wondering: why is this happening? If we have been hearing for months that we have a “renewable shield” that protects us from the global energy crisis, what the hell has happened to give us back the fiscal axe?
The short answer is that the system has worked so well that, paradoxically, it has taken away our aid. Spain is facing a strange energy and economic paradox: the good health of our generation system and the moderation of inflation have caused the defense mechanism designed by the Government to blow up. The result is bittersweet and frustrating for the average consumer: we generate the cheapest energy in Europe, but the tax burden on your next bill will return to pre-crisis normality.
The CPI trap. The Government has not removed the aid because of a last-minute whim, but because the law itself required it to be done. The anti-crisis decree had a catch or “kill clause”: stated that, if energy prices stopped skyrocketing and did not rise more than 15% compared to April of the previous year, the tax reductions would be automatically canceled in June. And that is exactly what has happened.
Data from the National Institute of Statistics (INE) show that the shield has worked. General inflation has slowed to 3.2%. The person largely responsible for this relief? The cheaper energy in our homes: electricity has fallen by 4.3% and gas by 9.6% compared to last year. As prices have shown these negative rates, far from exceeding that legal limit of 15%, the rule has fulfilled its threat. The system has made our energy so cheap that, by law, we lose the exceptional 0.5% bonus on the special tax on electricity and we have to pay VAT on electricity and gas again at 21%.
But will the “renewable shield” be of any use? The Ministry of Economy sticks out its chest and celebrates that the moderation of prices demonstrates the capacity of the “renewable shield” and confirms that the Spanish system can absorb external shocks such as the war in Iran. In fact, Spain is resisting much better than its neighbors because the share of clean energy in our generation mix already exceeds 60%. Unlike countries like Italy or Germany, which depend heavily on the gray fringe of fossil generation, Spain’s massive wind and solar deployment sinks wholesale prices during the day.
We have even seen historical milestones where the wholesale market has set negative prices of up to -10 euros per megawatt hour (MWh). However, why don’t we notice this renewable miracle on the bill? The wholesale cost of energy represents only 41% of an average household bill. The rest of the amount they swallow it network tolls (23%), VAT (17%), system charges (10%) and commercial margins. Cheap wholesale electricity is necessary, but insufficient if tolls and taxes continue to suffocate the final bill.
Be careful when you go to get gas. The INE details that “fuels and lubricants for personal vehicles” They experienced a year-on-year increase in prices of more than 15% (15.5%), dragged down by a huge inflation of 28.2% in diesel. By exceeding the legal threshold of 15%, gasoline will maintain its 10% VAT reduction and aid for professional diesel, at least until June 30.
The danger of summer. The withdrawal of part of the light tax shield will be immediately noticeable. According to the calculations of Francisco Valverde, expert analyst in the electricity market in statements for The Newspaperthe return to normal taxes will mean a bill increase of around 15% for all consumers in June. For an average customer, this will imply an additional payment of between 8 and 9 euros, while for gas the upward impact will be between 9% and 10%.
But the horizon hides a greater challenge: summer. The analyst Antonio Aceituno warns that our current “hydraulic shield” will begin to give way. With heat waves, solar panels lose efficiency, the use of air conditioning increases demand and expensive gas combined cycles will have to be turned on to avoid blackouts. If the conflict in the Middle East persists, forecasts suggest that the wholesale bill could jump above 100 euros per MWh in June, reaching around 120 euros in the middle of summer.
The cracks that no one wants to see. To understand why the renewable miracle does not end up sticking in your pocket, you have to look at the structural flaws that experts denounce:
- An inelastic and “passive” demand: Joaquín Coronado highlights a huge dysfunction in our market. When electricity reaches ridiculous prices of €0.51/MWh, Spanish consumers do not react by consuming more to take advantage of the bargain. By not using that cheap energy, it ends up being exported by French and Portuguese agents, which paradoxically drags our prices up through European coupling.
- “All against all” in the sector: According to Coronadothe actors in the Spanish electricity sector are immersed in an internal war, blaming each other and resenting cooperation. The expert suggests that Spain should rethink its institutional architecture, looking to the United Kingdom, where a system operator has been created (National Energy System Operator) with operational independence to separate network planning from asset ownership.
- The “night fissure”: The transition is incomplete. As evening falls, solar energy disappears and we depend on gas again. Without investments in mass storage systems and batteries to store the day’s excess megawatts, we will continue to be hostage to volatility every time the sun sets.
The hidden price of the miracle. The Government’s response plan fulfilled its main objective: to cushion the war and save household purchasing power. We have managed to decouple our system from the worst international gas whims and avoided fuel inflation that would be close to 28.9% without aid.
But June will be a reality check. As long as the domestic consumer remains trapped in a network of tolls and taxes that account for almost 60% of the bill, as long as the network lacks large batteries to store the sun and as long as the sector remains in conflict, zero-cost electricity will be just an illusion. We generate free electricity, yes, but we will continue to pay for the labyrinth that goes through until you turn on the plug in your home at a European luxury price.
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