Even though you may not have noticed your bills going down, because the price of energy at source is now less than 45 euro/MWh, the ceiling set in the Royal Decree of urgent measures to ease the cost of living, the IVA is now set to return to 21% from today. This will mean an increase of 62 euro per year on the bills of an average user.
The OCU consumer association is appealing for the Government to maintain a reduced tax rate, as they insist electricity is a basic service to which a reduced IVA should always be applied, regardless of how much it costs to produce it. Countries like Portugal or Belgium already do.
The energy crisis that occurred as a result of the war in Ukraine raised electricity prices even higher than they were, as they had been high for some time, pushing the price of pretty much everything up with it. Faced with this situation, OCU had proposed several measures to improve the electricity market and launched a campaign to reduce the IVA on electricity, which was later expanded, calling for the temporary elimination of taxes on all energies.
Finally, the situation forced the Government to take measures to control energy prices and pressure from consumers managed to reduce energy taxes, lowering the IVAT rate to 5%, but only temporarily. At the end of last year, a new decree extended some of these measures and established a calendar to progressively eliminate others. The reduction in IVA on electricity was one of those measures aimed at disappearing.
The last Council of Ministers in 2023 approved that the IVA on electricity would go from 5% to 10% and that this rate would be maintained until the end of 2024, as long as one condition was met: that MWh prices in the wholesale market would remain the same, above 45 euro/MWh. Specifically, IVA would become 21% as long as the wholesale price was below 45 euro/MWh in the calendar month prior to the last billing day. That is, all invoices that include consumption for at least one day in March will have IVA of 21%. Only households with the social bonus are exempt from this increase since their IVA will remain at 10% throughout 2024.
During the month of February, the production of renewable energy, especially wind, has been exceptionally high, due to the passage of several storms with strong winds. And thanks to this, electricity prices have been reduced until they fall below that barrier of 45 euro. Specifically, the average in the OMIE wholesale market has been 40 euro/MWh. As a consequence, the requirement to extend the reduced rate is no longer met and the IVA will no longer be 10% and will return to its usual level of 21%, even though bills are still higher than they were.
The abundance of renewable energy at a low price is good news, but only users who have a PVPC rate or another indexed rate could notice this price drop, which should alleviate the tax increase. In practice it will not happen like this or at least not in such an intense way. An average household with PVPC (4.6 kW and 292 kWh of monthly consumption, that is, 3,500 kWh per year) will pay 51.64 euro during the month of February, but when March consumption is included, the IVA applied will be 21%: the bill for the month of February would rise to 56.81 euro, cancelling this reduction in the markets.
OCU estimates that if the IVA is maintained at 21% over time, the bill of an average household would rise by 62 euro per year due to the tax change.
Those who have contracted a fixed price will not be able to take advantage of the drop in wholesale prices (at least until they are renewed) and will notice a direct increase in their bill.
If taxes are raised when prices fall, consumers will never benefit from the low costs of renewable energy.
Although energy prices in the daily market (OMIE) have fallen substantially, the regulated PVPC tariff has not fallen as much. Its new calculation methodology no longer depends entirely on that daily market, but gives a weight of 25% to the futures markets. With this “adjustment”, the PVPC for the month of February has become more expensive by 14%.
The new system penalises the bill of households with PVPC, because if there are drops in the daily market, they are not transferred quickly. Specifically, with the old calculation that did not include this futures adjustment, the PVPC invoice would be 47.10 euro with IVA of 10% (51.8 euro with IVA of 21%). That is, the adjustment of the futures market this month has made the bill more expensive by 10% (4.53 euro).
Electrical energy and also gas should be considered essential services and always enjoy a reduced IVA rate, of 10% maximum. This is an old OCU claim that has been reiterated in different situations. Supplies such as water already have this reduced rate and in other neighbouring countries, they also apply a super-reduced IVA to electricity supplies. In Portugal and Belgium, the IVA on electricity is 6%.
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