The first option chosen was to implement a policy with the quickest visible impact: tax relief on electricity bills, later extended to natural gas, and still in effect today. Government estimates show that these energy bill cuts have helped households and businesses save money, totaling around 18 billion euros in under two years, as outlined in the Stabilization Plan 2023-2026 submitted to Brussels.
Under the leadership of the Ministry of Economic Affairs, headed by Vice President Nadia Calviño, Brussels was told that this represented the most substantial energy tax relief in history. It was part of a broader anti-crisis strategy designed to curb inflation and soften the impact of price rises on families and firms during the energy crunch and the economic repercussions of the war in Ukraine.
“The package of measures to date exceeds 35,000 million euros, which amounts to nearly 3% of GDP,” the latest Government Stabilization Plan notes. “In addition, 10,000 million in guarantees were provided to Spanish companies in March.” The plan also acknowledges that the cost of these measures, including what is described as the largest energy tax cut in history, is about 2.5 billion US dollars, with 18,000 million euros since its June 2021 start.
Two years ago, in June 2021, the authorities decided to reduce the VAT on electricity for small consumers from 21% to 10% and temporarily suspend the 7% electricity generation tax. The special tax on electricity was cut from 5.1% to 0.5%, the minimum allowed by Brussels. By expanding these tax cuts, the government delivered a 5% VAT discount on electricity and extended the relief to natural gas bills, with the latest extension holding these measures through the end of 2023.
A shield for 2023 and beyond
The government has built successive anti-crisis shields as energy price volatility surged about two years ago. The aim has been to cushion the impact of higher electricity and gas costs on households and businesses by implementing, redesigning, and expanding measures that create a safety net against spikes in energy prices that could persist into a prolonged election year ahead.
The administration has strengthened consumer protection programs to prevent sharp rises in electricity and gas bills for millions of homes and enterprises. These protections rely on price caps, tax relief, and direct aid should market tensions resurface in electricity and gas sectors. 2023 is slated to conclude amid municipal and regional elections in May and a general election in December.
Spain and Portugal secured Brussels approval to extend the Iberian exemption, a mechanism capping the gas price used for electricity generation, until year-end to help keep electricity prices down. The cap, due to expire on May 31, ensures other generation technologies are not affected by spikes in gas prices that reached historic highs during the energy crisis.
Officials estimate that the falling wholesale electricity prices have saved Spanish consumers more than 5.1 billion since the mechanism began on June 15. The Iberian cap has not operated for two months because wholesale gas market prices have stayed below the ceiling (65 euros per MWh). If gas markets were to tighten again, the Iberian border would serve as a lifeline for Spanish and Portuguese households.
As part of early shock measures to counter the energy crisis, a system to curb extraordinary profits of electricity companies was introduced by late summer 2021 to prevent windfall gains. In practice, authorities set a ceiling price of 67 euros per MWh for nuclear, hydro, and renewable electricity sales contracts, maintaining this for at least all of 2023. In just over a year, the measure needed adjustments due to excessive income, reaching about 450 million euros.
Simultaneously, the social electricity bonus for vulnerable consumers was strengthened and electricity bill discounts increased to as much as 65% to 80% of the total, with reductions ranging from 25% to 40% based on the degree of vulnerability, and the prevention of supply interruptions for vulnerable households was extended.
The government also introduced a temporary new social bonus for middle-income homes facing the energy crisis and economic uncertainty caused by the war, offering around 40% off electricity bills for a household with two adults and two children earning up to 27,700 euros per year.
Gas bill relief
Millions of homes were shielded from rising gas costs by capping increases in regulated rates and by setting a cap of 19.55 euros on the maximum price of a butane cylinder. Subsidies, funded by public money, were injected to help reduce bills for customers with regulated gas tariffs by nearly 40%.
A package of measures launched last October aimed to limit increases for customers with regulated gas tariffs through to the end of 2023 and to create a new discount rate for centrally heated homes in neighboring communities. The government covers the million-euro deficit in the national gas system accounts with public funds, covering the cost of the discount for roughly 2.5 million customers (though about 5.7 million consumers are not protected under free market gas tariffs). The public contribution to subsidize regulated gas tariffs is currently just over 500 million euros from October to the end of March.