Spain left vulnerable to huge increase in electricity

In recent years, the Government has been creating a legal framework to intervene in the electricity market and stem historic peaks of electricity consumption. electricity prices In the worst part of the energy crisis. Spain has developed various price ceiling mechanisms to alleviate this situation. The impact of huge increases in household and business bills. It’s a kind of safety net, a system that comes into play ‘just in case’. This system will be disabled from the beginning of 2024, in line with the European Union’s directives to withdraw most of the extraordinary measures taken during the crisis.

The end of the Iberian exemption (the mechanism that limits the price of gas used to generate electricity in order to reduce the final price of electricity) as of January 1, cutting the profits of electricity companies with a ceiling price of 67 euros. Increase in per megawatt hour (MWh) for energy produced from nuclear, hydroelectric and renewable energy, It removes legal protection against large increases in electricity.

Given the relative normalization of energy markets and prices now far from the historical highs reached during the crisis, the European Unionor extend the crisis time frame for next year It serves as a guarantee that member states will take emergency measures due to the war in Ukraine.

Without this community legal framework, it was impossible to extend the Iberian exception, which expired after eight months of de facto inactivity because natural gas prices have been below the ceiling set by the mechanism since February. And without this community legal framework, it was very difficult (in this case not impossible) to maintain price limits in electricity sales contracts to control ‘benefits falling from the sky’.

The Spanish Government has been openly advocating in recent months the extension of the community framework in the EU beyond this year. In fact, Madrid’s commitment included a permanent extension “until necessary” until the full normalization of energy markets, in order to provide member states with the tools to act over a long period of time to avoid large-scale crises if necessary. increases in electricity prices.

However, it is now understood from the Spanish AdministratorsThe situation in energy markets has stabilized and the forecasts did not foresee new shocks with rapidly accelerating price increases, making it difficult to justify the extension of sales price ceilings, which was intended as an exceptional and temporary measure.

Goodbye to the double security net

Spain and Portugal launched the so-called Iberian exception, this one imposed Upper limit on the price of natural gas used in electricity generation Thus, other production technologies were not affected by the increases in gas prices, which reached historical peaks during the energy crisis.

The government, the mechanism saved all Spanish consumers more than 5.1 billion It was implemented a year and a half ago due to the decline in prices in the wholesale electricity market. However, since the prices in the wholesale gas market are below the limit set by the EU Commission, the protection system has not been implemented since the end of last February. Iberian exceptionwith. But the mechanism in place served as a lifeline in case gas markets became tense again.

The system of price ceilings for some of the electricity that has been in place for two years, in order to prevent possible extraordinary profits of electricity companies and to prevent some companies from taking advantage of the historical increase in energy prices to increase their revenues, is also coming to an end. in an abusive way. Spain sets price ceiling for electricity sales contracts and it did so earlier and in a more restrictive way than other European Union countries, with much lower price limits (67 euros per MWh) that Brussels finally approved for all member states (180 euros per MWh).

The Spanish Administration will not finally extend the mechanism, which will expire on December 31. The purpose of the system was to prevent energy companies from selling the electricity produced by using some of the nuclear, hydroelectric and renewable energy at exorbitant prices determined in the wholesale market. Prices have skyrocketed due to the high price of natural gas and CO₂ emission rights, costs that these technologies do not actually support.

Since then, the Government has been forcing nuclear, hydro and renewable energy companies to return extra revenue from sales contracts signed above the ceiling price of 67 euros per MWh to avoid windfall profits. According to this newspaper, electricity companies have already had to return excess revenues totaling 812.7 million euros to the system. The industry estimate is that mandatory reductions will total around €1,000 million over a two-year validity period.

A reduced social shield

With the removal of intervention measures on the electricity market, the government is focusing on creating a smaller social shield to protect individual customers and companies against energy prices that remain high compared to the historical average but remain well below historical highs. crisis.

The administration has approved maintaining the tax reduction on electricity and natural gas bills, but with a gradual increase compared to the levels implemented during the energy crisis. From January and throughout this year, VAT on electricity will rise from the current 5% to 10% (compared to 21% before the crisis); Special Electricity Duty (IEE) will increase from the current 0.5% to 2.5% in the first quarter of the year and to 3.8% in the second quarter (traditionally it was 5.1%); and the Electric Energy Production Value Tax (IVPEE) will be 3.5% by March and 5.25% (usually was 7%) by June.

In parallel, the VAT on the natural gas bill, when consumption is highest in the winter months, will increase from 5 percent to 10 percent in the first three months of 2024, and the normal 21 percent rate is expected to increase after that. can be saved. In addition, the Executive decided that the mechanism limiting the increases that can be applied to gas prices of last resort (TUR) within the scope of the ‘social shield’ and the validity of the neighborhood gas tariff will be maintained until at least mid-2024. ‘ It has been revised for 2024 and other safeguards have been removed or relaxed. The mechanism limits, but does not prevent, increases for the 2.8 million homes experiencing a contraction in regulated gas tariffs. In fact, during the winter months between January and March, this rate will increase by an average of 8.2%, and in neighborhood communities with central heating, the rate will increase by 5.17% to 7% during the same period.

The government also decided to continue measures aimed at protecting particularly vulnerable consumers by maintaining the strengthened social electricity bonus approved during the crisis, which temporarily extended discounts on the electricity bill to 65% and 80% of the total amount. anti-crisis measures (between 25% and 40% depending on the degree of initial vulnerability). The number of beneficiaries of the social bonus increased by over 30% compared to before the energy crisis, reaching 1.55 million families.

The government also decided to keep active the exceptional and temporary new type of social bonus for middle-class households with a 40 percent discount on families’ electricity bills due to the economic uncertainty caused by the energy crisis and war. A person who can earn up to 27,700 euros per year with two adults and two children. A new type of bonus they get Less than 30,000 users despite potential goal of reaching 1.5 million homes. Likewise, the Executive extended the ban on cuts in essential goods to vulnerable households.

Source: Informacion

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