Spain withdraws because of the levy on “excess profits” of the electricity companies

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Spain’s left government has withdrawn a high profile levy on “excess profits” from electricity companies after the sector said the measure jeopardized future investment.

A government decree this week revised the rules on the levy, which officials had previously forecast could range between € 2.6 billion and more than € 5 billion in the six months that it would have been in force but now it should be a fraction of it.

The move comes as Spain is under pressure from other fronts for its stance on electricity prices, a domestic hot political issue. Spain was isolated this week at an EU ministerial meeting when it proposed a revision of the bloc’s energy pricing system.

The surplus levy was at the core of the Pedro Sánchez government’s efforts to cope with record-high electricity prices – which in turn are largely caused by soaring gas prices.

In an interview with the Financial Times, Ignacio Galán, chairman and CEO of Spanish utility Iberdrola, said the impact of the levy on his group would be “zero or minimal” due to changes this week – essentially because the tax is no longer Used when electricity is sold on the long-term market at fixed and not spot prices.

He added that € 114 million in provisions that Iberdrola set aside in September to pay the two-week levy will now be returned to the group’s general funds by the end of the year. Iberdrola previously expected the levy to cost them € 2 billion in the six months to the end of March.

The government, which has accused the power companies of being opaque, believes it is too early to predict the impact of the changes.

The levy was supposed to hit energy companies that benefited from high electricity prices, but whose costs were not influenced by the rising gas price.

Ignacio Galán, chairman and CEO of Iberdrola, said the impact of the levy on his group would be “zero or minimal” due to changes this week © Simon Dawson / Bloomberg

However, the energy companies argued that the levy not only jeopardized future investments, but, as originally stated, was levied on notional profits, as most of the electricity is sold on the futures market – a factor that will be taken into account in the changes this week.

“For those of us who sold all of our energy at fixed prices – and for the next year we sold 96 percent of our contracts at fixed prices that are not tied to the spot price – it [the levy] will have no impact, ”Galán said of the revised decree.

Iberdrola and other energy companies had previously argued that the levy forced them to renegotiate contracts and raise prices for industrial consumers.

Galán added: “The decree [that initially imposed the levy last month] created a situation of uncertainty; Investors wanted certainty, so we had to rethink all of our plans. But now that the situation has been resolved, our plans are unchanged. ”

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Looking at Iberdrola’s global investments of $ 10 billion this year.

Iberdrola, the world’s third largest utility and a self-proclaimed champion of renewable energy, has been at the forefront of charges against the levy, which were also launched by groups like Endesa, Enel’s Spanish subsidiary, and Eurelectric, the pan-European industrial group.

Endesa has now welcomed the revision of the levy as “rational”.

Spain’s left-wing coalition wanted to use the funds to help protect consumers from rising prices in a country where the tariffs of 40 percent of households are linked to spot market rates. According to research by Standard & Poor’s, the Spaniards already spent a lot more on electricity than elsewhere in Europe before the pandemic – on average, more than 8 percent of the available net income.

Algeria, the country’s main gas supplier, has announced it will close a pipeline through Morocco from Monday to put pressure on its rival rival, with whom it severed diplomatic ties in August.


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