Government shields itself against large electricity and gas hikes throughout election year

The Government has been building and reassembling successive anti-crisis shields since the energy price volatility broke out almost two years ago. The aim was to alleviate the impact of the escalation of of electricity and gas prices on households and companies, and to this end measures have been implemented, redesigned and extended until a "safety net" has been erected against the exorbitant rises in electricity and gas prices that will last throughout the long electoral year that lies ahead.

The Executive has managed to set up consumer protection plans in case tension returns to the electricity and gas markets and which will prevent exorbitant rises in electricity and gas bills for millions of households and companies through price caps, tax reductions and direct aid until the end of 2023, a year marked by the municipal and regional elections in May and which will end with the culmination of the general elections, in principle, in December.

Iberian derogation' until December

Spain and Portugal have just obtained the approval of Brussels to extend until the end of the year the so-called Iberian exception, the mechanism that imposes a limit on the price of gas used to produce electricity in order to lower the final price of electricity. The cap, which was to expire on May 31, seeks to prevent the rest of the electricity production technologies from being infected by new increases in the price of gas, which has reached record highs during the energy crisis.

The Executive calculates that the mechanism has saved all Spanish consumers more than 5,100 millionsince it was implemented on June 15 due to the reduction in wholesale electricity market prices. The extension will be implemented with certain adjustments to the price cap applied to gas so that the rises are slower, going from the current ceiling of 55 euros per megawatt hour (MWh) to 65 euros per megawatt hour (MWh) in December.

During the month of March the mechanism has not been applied because the wholesale gas market price is lower than the ceiling set by the Iberian exception, a situation that may continue over the next few months. However, in the event that the gas markets become tense again, the Iberian cap will act as a lifeline for Spanish and Portuguese consumers.

Taxes, cuts and aid

The government has also prolonged other measures to prevent sharp rises in electricity prices throughout the year. Thetaxcuts applied to electricity bills will be maintained throughout the year, with a cut in VAT from 21% to 5%, the suspension of the 7% tax on electricity generation and the reduction of the special tax on electricity from 5.1% to 0.5% to the minimum allowed by Brussels.

The Government activated as part of its first shock plans against the impact of the energy crisis, at the end of the summer of 2021, a system to control the extraordinary profits of electricity companies to prevent them from taking advantage of the escalation of prices to increase their income. In practice, the Executive has since imposed a price ceiling for electricity sales contracts and will also maintain it for at least the whole of 2023.

The aim was to prevent energy companies from selling electricity produced with nuclear, hydroelectric and part of renewable energy at the then exorbitant prices of the wholesale market, triggered by the price of natural gas and CO2 emission rights, which these technologies do not support.

The mechanism activated by the Government obliges nuclear, hydro and renewables companies to return the extraordinary income obtained with the contracts signed above a maximum price of 67 euros per megawatt hour (MWh) which, according to the Government's calculations, was the barrier between taking unjustified advantage of the crisis and not doing so. The sum of the amounts that the companies have already had to return for excessive revenues in just over a year amounts to 450 million euros.

At the same time, the Executive has reinforced the social electricity bonus for vulnerable consumers, extending the rebates on electricity bills temporarily to 65% and 80% of the total amount as part of the anti-crisis measures (from between 25% and 40% depending on the original degree of vulnerability), and the ban on supply cuts to vulnerable households has also been extended.

The Government has also created a new type of social bonus on an exceptional and temporary basis for middle class households due to the energy crisis and the economic uncertainty caused by the war, with discounts of 40% of the electricity bill for families with two adults and two children, with an annual income of up to 27,700 euros. The Ministry for Ecological Transition is working on a reform of the social voucher to also set income-based limits for large families, who until now have received the subsidies directly regardless of their income.

Aid for gas bills

The Government has also lifted a shield against increases in the natural gas bill for millions of households with caps on increases in regulated tariffs and also applies a limit of 19.55 euros to the maximum price that a butane cylinder can reach. The Executive is injecting subsidies that reduce the bills of customers with regulated gas tariffs by close to 40% and which are being financed directly with public money to cushion the impact of the price hikes.

Last October, the Government launched a package of millionaire measures to limit by law the increases that can be applied to customers with regulated gas tariffs until the end of 2023 and the creation of a new type of reduced tariff for households with central heating in their community of neighbors. The Government covers with the public budget the millionaire hole that these measures will cause in the accounts of the Spanish gas system, assuming the cost of the reduction applied to some 2.5 million customers (although the 5.7 million consumers with free market tariffs are outside the protection).

The Executive decided to extend until the end of 2023 the cap on the increases that can be applied to the regulated gas tariff, known as the Tariff of Last Resort (TUR), which the Government reviews every three months, mainly according to the evolution of gas prices on international markets. As part of the contingency plan of energy measures, the Government also created a new type of regulated gas tariff which will be available to neighboring communities that have central heating -until now they could not benefit from it because they exceeded the maximum allowed consumption- and which in practice will serve to reduce the bill of households that contract it by around 50%.