June 24, 2021
Today, Thursday 24th June 2021, the government have approved a reduction in IVA on electricity from the current rate of 21% to a rate of 10% for customers with a contracted power of up to 10 kW, which means it will benefit domestic consumers as well as small and medium sized businesses.

This tax cut will be in force until at least 31 December 2023 and will be maintained as long as the wholesale electricity market is above 45 euros/MWh. This measure will lead to a reduction in electricity prices of around 9%, to which the temporary abolition of the 7% tax on electricity generation will be added at a later date.

With both tax reductions, the price of electricity bills will be reduced by around 12% for domestic consumers and small and medium-sized companies.

The Minister for Consumer Affairs, Alberto Garzón, had indicated last week that the government was studying a review of electricity taxation, with a “possible” reduction from 21% to 10% of IVA on electricity prices in view of the signs of the difficult months that the market has been showing.

The decision had come as a surprise due to IVA being chosen for the tax reduction. The government had originally been considering the possibility of suspending other taxes on electricity tariffs to moderate the final cost to the consumer, the favourite in the ‘betting pools’ had been the electricity generation tax, which in any case, has now been suspended too.

The government had taken a similar measure in 2018, when in the face of soaring prices, it suspended the 7% electricity generation tax for six months and deactivated the “green cent” for fuels used for electricity production.

Right now, the price of electricity has reached historic highs. Last Wednesday it reached 94.63 euros per megawatt-hour (MWh) on the wholesale market, the third highest price in history, according to data from the Iberian Electricity Market Operator (OMIE).

If we analyse historical records, this figure has only been surpassed by the 94.99 euros MWh which was reached on 8 January, during the Filomena storm, The historical daily maximum was recorded on 11 January 2002, which was 103.76 euros, so there is still a probability, prices are not set to fall quite as soon as we may hope.

All of the above will have repercussions on the final electricity bill. According to the analysis carried out by FACUA-Consumers in Action on the evolution of the semi-regulated tariff (PVPC), “if the prices applied from 1 to 15 June are extrapolated to a full month, the average user’s bill would suffer a year-on-year increase of 27.53 euros and would stand at 88.11 euros (including taxes). This would be the second most expensive bill in history, ahead of only the 88.66 euros of the first quarter of 2012”.

Although the cut in IVA will make a significant reduction in costs, it must not be forgotten that when you use your electricity and the importance of doing so, will be ever so more important during this unprecedented year of high prices to keep the cost of your energy as low as possible.

Si Compare continually monitor the market and have saved our users 1000s by switching, we will continue to do so and keep you infirmed should there be any further changes in regulation or better price options available.

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