Spain’s energy companies are preparing to fight back against the government’s plans to reduce their “extraordinary profits” and redirect these to consumers.
“The measures aimed at intervening in the markets go against market efficiency and European orthodoxy and they create a climate of legal insecurity,” said the industry association Aelec, which brings together the energy companies Iberdrola, Endesa, Viesgo and EDP. Company sources said they will analyze the government’s initiative to see whether to mount a legal challenge.
The Nuclear Forum, a group that also includes the main electricity companies, warned that if a government bill on reducing CO₂ emission-related profits gets greenlighted by Congress, “the continuity of Spain’s nuclear plants would become impossible.”
According to the National Statistics Institute (INE), consumers’ electricity bills grew 7.8% in August from July, and 34.9% from August 2020
Soaring electricity bills have become a political problem for the executive of Pedro Sánchez, whose Socialist Party (PSOE) leads a minority government with leftist junior partner Unidas Podemos.
Spain’s wholesale power market, which sets the amount paid by the companies that supply electricity to households, has been posting record-high prices since the beginning of summer. According to the National Statistics Institute (INE), consumers’ electricity bills grew 7.8% in August from July, and 34.9% from August 2020.
On Tuesday, Sánchez announced new emergency measures that include tax cuts and greater protection for vulnerable households that cannot afford their utility bills. But the measure that energy companies are reacting against is the one that would contain their “windfall profits” obtained by by the rising market cost of gas.
A similar formula would be applied to limit profits for hydro and nuclear plants that have no CO₂ emissions but gain from higher prices. This legal initiative affects plants that opened before October 25, 2003, ahead of the creation of the European Union’s CO₂ emission rights market system. It also affects hydroelectricity plants and early renewable plants that began operating before that date.
Aelec said in a statement that the sector is neither responsible for the current situation nor benefiting from it. “This can be seen from the share value of companies in the stock market in spite of the rising prices throughout 2021.”
Aelec said the government should instead seek “truly efficient solutions that protect consumers on a regulated tariff from daily price volatility, instead of unfairly penalizing a sector that is fully committed to the electrification and decarbonization of society, to territorial development and job creation, and to the protection of vulnerable groups.”
Of Spain’s 27.5 million consumers, around 10.7 million are under a regulated electricity tariff called PVPC, which is indexed to the wholesale market and is usually cheaper than the non-regulated alternative. But households on the PVPC tariff are more exposed to the recent price rises, as consumption – one of the items paid when contracting the electricity supply in addition to other regulated costs – oscillates according to the market.
Despite the Nuclear Forum’s warning about the risk of having to shut down plants ahead of time due to untenable costs, the owners of these facilities do not have the power to unilaterally decide on their date of closure, but must instead make a request to the relevant ministry. These plants typically operate on 10-year licenses and must honor the timeframes or face hefty sanctions.
There are seven nuclear plants operating in Spain (Almaraz 1 and 2, Trillo, Cofrentes, Vandellós 2 and Ascó 1 and 2), owned by Endesa, Iberdrola, Naturgy and EDP. Their production contributes around 20% to Spain’s energy pool and they are slated to be decommissioned between 2027 and 2035.
Prior to this latest announcement, the government had already reduced the value-added tax (IVA) on electricity bills from 21% to 10% for consumers with up to 10 kilowatts of contracted power, in cases where the average monthly cost of a MWh exceeded €45.
Earlier this month, the prime minister pledged in an interview with EL PAÍS that by the end of the year, residents of Spain will have paid the same on average for their electricity bills as in 2018.
English version by Susana Urra.