Spain approves emergency package to tackle high energy bills

Spain will cut connection fees and tax excess profits on electricity supply contracts as part of a multi-billion euro emergency package to cushion businesses and consumers from soaring energy prices, the government said last week.

Initially announced on Monday, the cabinet approved on Tuesday the 16 billion euro package of soft loans and direct aid that also includes measures to cap rental increases and boost employment of young people and women.

With the release of the latest BOE of Royal Decree-Law 6/2022, last week, urgent measures have been adopted within the framework of the National Plan to respond to the economic and social consequences of the war in Ukraine.

The VAT reduction of 10% and the reduced rates of the IE (El impuesto especial sobre la electricidad) have been extended until next 30/06/22.

There have also been modifications to the prices applied in terms of ‘los cargos de la energía’ (The charges are the regulated prices intended to cover the rest of the regulated costs, such as the financing of renewables, the extra cost of energy production in non-peninsular territories or the annual deficit payments, and are determined by the Ministry for Ecological Transition and the demographic challenge), both for the energy term and contracted power, from the consumption billed from 31/03/22 to 31/12/22.

Translation for image above:

Energy measures

• Exceptional and temporary measure, setting a reference price for gas for electricity production, in Spain and Portugal
• Updating of the remuneration regime for the production of electricity with renewables
• The mechanism to reduce excess benefits in the electricity market is extended until June 30th 2022
• Other regulatory measures to promote and accelerate the deployment of renewables

“The objective for electricity prices is: as low as possible,” Economy Minister Nadia Calvino told a news conference after the weekly cabinet meeting.

Presenting the package, which came into force on March 31 and will last for three months, Energy Minister Teresa Ribera said Spain would channel around 2.5 billion euros to reducing interconnection fees for energy-intensive users:

• On the one hand, the VAT reduction of 10% and the reduced rates of the IE have been extended until 30/06/22.
• On the other hand, new prices are applied in terms of charges at tolls, for the term energy and power, for consumption billed from 31/03/22 to 31/12/22.

Soaring energy prices, exacerbated by the Russian invasion of Ukraine, have spurred widespread social discontent the minority government is now trying to assuage.

Of the total package, most of which still needs to be approved by the European Commission, 6 billion euros will come as direct aid and tax cuts mostly extended from a previous package related to the COVID-19 pandemic, while the remaining 10 billion euros are subsidised loans.

Ministers are still finalising the details of a so-called “Iberian exception” granted by the EU that will allow Spain and Portugal to cap gas prices.

Bank of Spain governor Pablo Hernandez de Cos said earlier that the current energy shock should be addressed through a common European response given the weaker or limited fiscal capacity of some European countries, including Spain.

Against that background, De Cos stressed that Spain’s rescue package had to be temporary to avoid overburdening public finances.

Though Spain’s public debt eased to 118.7% of gross domestic product from 120% in 2020, it is well above the EU average of 97.7% reported in the third quarter, according to Eurostat.