Shock plan to lower the price of electricity

The Council of Ministers has approved a Royal Decree-Law to maintain the final electricity bill of consumers this 2021 at the same level as 2018. The standard combines general measures, which benefit all consumers, with specific measures with a greater impact on vulnerable consumers, families, SMEs and the industrial fabric, as well as the environment and the territories near large reservoirs.

Thus, among the actions aimed at all consumers, the Royal Decree-Law includes short-term measures, such as reducing the Special Electricity Tax to 0.5% and suspending until the end of the year the Tax on the Value of Production of Electric Energy, which is levied at 7% on generation; increase by 900 million euros the contribution of the collection of CO auctions₂ aimed at covering electricity system costs up to €2 billion during the year; or temporarily reduce the extraordinary income caused by the high price of gas in some power plants.

At the same time, among the measures with the highest incidence in specific consumers, the protection of the vulnerable, families and SMEs is increased, establishing a minimum vital supply that prohibits the interruption of the service due to non-payment to the beneficiaries of the Social Electricity Bonus for six months in addition to the four already existing. The growth of the gas tariff (TUR) is also limited to prevent a sharp increase due to the impact of the cost of the raw material. In addition, a new mechanism is created to promote the contracting of term electricity, which will especially benefit the industrial fabric.

On the other hand, the Water Law is modified to order the use of water as an environmental and social good of the first order. Thus, new monthly limits on the rate of de-reservoir and minimum reserve volumes will protect the environment and allow the development of sustainable economic activities linked to the revitalization of riverside municipalities.

Reduce the impact of gas

These shock measures are in addition to those already approved last June to cushion the impact of the gas price on electricity and the economy as a whole. At that time, the Executive reduced the VAT on electricity from 21% to 10% until the end of the year, for supplies up to 10 kW, and decided to suspend the 7% Tax on generation during the third quarter, indicating that it would remain vigilant to act in the event that it was necessary.

Since June, catapulted by the price of natural gas in international markets and by the high price of CO₂ in the EU, the wholesale electricity market price has grown by 80%, reaching unprecedented levels that have created social alarm and are a cause for obvious concern.

Considering that the mismatches between supply and demand in the global gas market will remain during the coming months, the Government has chosen to approve a battery of extraordinary measures with immediate application to prevent and cushion the impact of energy costs on consumers and on the economy as a whole. The critical situation of the energy markets coincides with the path of recovery after the pandemic and it is a priority to avoid a slowdown in the pace of growth.

To stop this spiral, the Royal Decree-Law establishes measures in accordance with the domestic legal order and with European regulations. Its immediate application will leave the economic effort of consumers to cover their electricity demand this 2021 at the same level as in 2018 (without considering the CPI), about 600 euros per year in the case of an average consumer in low voltage.

Temporary measures

Among the decisions adopted, the fiscal ones stand out: to extend until the end of the year the suspension of the Tax on the Sale of the Production of Electric Energy (IVPEE), which taxes generation at 7%; reduce from 5.1% to 0.5% the rate of the Special Tax on Electricity (IEE) -the minimum allowed by Community regulation-, and expand the amount collected with European CO auctions₂ to cover charges of the electricity system from the 1,100 million budgeted for 2021 to 2,000 million.

Likewise, the temporary reduction of the excess remuneration that non-emitting power generation plants are obtaining in the wholesale market has been approved, thanks to the impact on it of gas costs that they do not bear. A formula similar to that used to reduce the carbon dividend of non-emitting plants, now in process in Congress, is applied.

With this formula, the salary reduction will be proportional to the price of the Iberian Gas Market (MibGas). With the current levels, some 2,600 million will be recovered until March 31, 2022, at which time it is expected that tensions in the global gas market have been overcome.

The reduction is a proportionate measure that acts on extraordinary profits, suddenly and unexpectedly due to misalignments in the international natural gas markets, and that could not be considered in the business forecasts.

Immediate impact of the invoice

This shock plan has an immediate impact on the consumer bill, either because of the tax reduction, or because both the revenues from _CO2 auctions and the reduction of gas reduce the charges to be passed on in the tariffs. These amounts have been revised and updated until the end of the year, so that the applicable charges will be 96% lower than the current ones. This makes it possible to reduce the regulated part of consumers’ final bills in a range that ranges from 47.2% of households to 24.5% of large industry. Additionally, the lowest tax burden will be applied to this decrease.

Also to face the situation of the coming months, the impact of the cost of raw material in the calculation of the three bands of the natural gas tariff of last resort (TUR) will be limited for a semester, so that the average increase in the next quarterly review, on October 1, will be 4.6%, instead of 29%. The amounts due will be passed on in the following revisions, with a buffer mechanism similar to that existing for butane cylinders.

Measures with a vocation for permanence

Along with the previous measures, the Executive has approved others with a vocation of permanence, such as a new minimum vital supply that extends the prohibition of cutting off the electricity service to vulnerable consumers for six months in addition to the four already existing -ten in total-, time in which a minimum supply of comfort will be guaranteed.

In order to increase the liquidity of forward markets, the Government will convene auctions of energy purchase contracts. The dominant business groups shall offer electricity in proportion to their share, and independent marketers, as well as large consumers, may purchase it and enter into forward contracts with them with a settlement period of one year or more.

The regulation also provides for the reform of the regulated tariff – the voluntary price to the small consumer (PVPC) – to incorporate the auction price reference with a maximum weighting of 10%. Free marketers that acquire energy in this way must indicate this in the invoices of their customers.

The Ministry for the Ecological Transition and the Demographic Challenge will approve a calendar for these auctions and the first will take place before the end of the year; Iberdrola, Endesa, Naturgy and EDP will offer 15,830 GWh, equivalent to 6.3% of the national electricity demand in 2020.

Water, a natural and social asset of the first order

On the other hand, taking into account the consideration of reservoir water as a good of the first economic, social and environmental order, the Water Law is modified to avoid sudden dewatering. Thus, at the beginning of each hydrological year, the hydrographic confederations will set a minimum and maximum regime of monthly flows to be undammed in reservoirs greater than 50 Hm3, both for situations of hydrological normality and prolonged drought, as well as a regime of minimum volumes of reservoir reserves for each month.

This introduction of criteria for the rational use of water resources will avoid undesirable effects on flora and fauna, and will contribute to achieving the environmental objectives set by European legislation. On the other hand, it will help to face the effects of climate change on the availability of water in Spain, exceeding 15% in the medium term and between 35% and 40% in a long-term horizon. At the same time, efforts will be made to facilitate the development of sustainable economic activities linked to the revitalization of riverside municipalities.

These measures are in addition to the two bills that the Government has sent to the courts for approval, and for which today the Council of Ministers has approved their processing by way of urgency. The first creates the National Fund for the Sustainability of the Electricity System, which will redistribute among all energy vectors the cost of historical renewables; the second acts on the remuneration of _co2 not emitted from the electricity market. Its complete application will reduce the final bill of households by more than 15%.

Extension of the term of coverage of direct aid to the self-employed and companies

In addition, Royal Decree-Law 5/2021 on extraordinary measures to support business solvency in response to the COVID-19 pandemic has been modified, which extends the temporal scope covered by direct aid for the self-employed and companies.

In this sense, the term of coverage of the aid is extended by four months, from May 31 to September 30. Thus, these finalist grants can be used for the payment of debts and fixed costs assumed by companies from March 2020 to September 30, 2021.

In addition, the Royal Decree-Law clarifies that, within the purposes for which the aid can be used, the concept of fixed costs incurred includes the accounting losses generated during the coverage period. Thus, the self-employed and companies may allocate the aid to satisfy debts and make payments to suppliers and other creditors, financial and non-financial, as well as to compensate for the fixed costs incurred, including accounting losses, provided that they have been generated within the established period and come from contracts prior to March 13, 2021 (date of entry into force of Royal Decree-Law 5/2021).

These modifications will allow the autonomous communities that still have part of the allocated resources to make new calls for aid in the remainder of the year. The objective is to maximise the boosting effect of the aid, so that it reaches all companies in all geographical areas that need it, contribute to reducing the over-indebtedness of companies and strengthen their balance sheets, consolidating the economic recovery.

Source: La Moncloa