VAT on electricity returns at 21% after falling prices.

However, in February, it registered an average price of forty euros, which is a condition that the decreased rate throughout 2024 is contingent upon the megawatt-hour exceeding forty-five euros.

The government raises the value-added tax (VAT) on electricity to 10% during the entire year of 2024, and it also raises the VAT on gas for the first three months of the year.

Beginning this coming Friday, the value-added tax (VAT) that is applied to the bill for purchasing energy will increase from 10% to 21% for virtually all domestic consumers. The explanation for this is none other than the precipitous drop that has taken place in the average price of a megawatt hour (MWh) over the course of the past seven days, with the total value coming in at 5.50 euros on average. This has resulted in the wholesale market closing at an average of forty euros in February, which is roughly half of what it was the previous month and three times less than it was a year ago. This is also reflected in the progression of inflation.

Following the de-escalation of energy costs and the implementation of a value-added tax of 5% throughout the year 2023, the government made the decision to implement a value-added tax of 10% on the power bill throughout the entire year 2024. However, the government made this decision contingent on the wholesale market price per megawatt-hour being greater than 45 euros. The Council of Ministers, in its decree of anti-inflation measures, which was enacted on December 27, stipulated that the original value-added tax rate of 21% would be implemented the following month in the event that the price of electricity fell below the level of 45 euros.

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In addition, this is precisely what has taken place. According to the Iberian Energy Market Operator (OMIE), the average price of electricity on the wholesale market in February was forty euros. This information was obtained from the markets. As long as the reference price of 45 euros is maintained, the value-added tax (VAT) on the receipts will incur an increase from 10% to 21%. According to the calculations made by Selectra, a home services offer comparator, this translates into an additional approximately 4.5 euros on the electricity bill for the month of March for a residence that has an average monthly usage of 190 kilowatt-hours.

With the exception of the approximately 1.6 million people who are eligible to receive the electric social bonus, this rule will have an effect on all consumers in the same manner. These individuals will be required to keep their value-added tax at 10% during the entire year, regardless of the price of power during the period. On the other hand, there are nuances. The majority of consumers in a free market will experience an increase in the cost of their bills in comparison to the month of February. This is due to the fact that the majority of these consumers have a set price throughout the year, to which a higher tax rate is now added. However, users who have a regulated rate may discover that the opposite occurs. The rate that is referred to as the PVPC rate is indexed to the wholesale price of energy, and the futures market indicates that the megawatt-hour will be much lower in March compared to the 40 euros that it was in February.

During the most recent week, there was a significant decrease in costs, with the most recent offerings in the so-called “pool” closing at an average of 5.50 euros. The monthly average was approximately fifty euros up until that point. And the answer has a lot to do with the weather circumstances, which allowed gas to disappear as a generation source in the daily market. This is something that happens practically always. Storm ‘Louis’ increased wind generation, which, in conjunction with the growing presence of photovoltaics, led to these two technologies dominating the’mix’ together with hydraulics and with a modest assistance from nuclear and coal.

The generation of renewable energy typically occurs at very low prices. This is due to the fact that the resource that they use (the sun, the wind, or the water) is free, which means that their expenditures are restricted to the maintenance of the equipment. In this manner, the price of electricity often decreases when the production of energy from wind, photovoltaic, and hydraulic sources is sufficient to cover the demand for power generating. In addition, this is starting to occur more frequently for two reasons: the demand for electricity is at levels that have never been seen before, and the Spanish electricity system is incorporating a growing number of renewable sources of energy, which means that the kiss between the two curves is becoming more likely.

It has been argued by the Spanish Consumer Association that the removal of the value-added tax (VAT) benefit on electricity “will cause situations of energy poverty for many consumers who today make significant efforts to pay the electricity bill.” The results of a poll that was conducted by this group indicate that 86 percent of users feel themselves to be vulnerable. The Popular Party has referred to the growth as “social irresponsibility” and has “demanded” that the government put a halt to it.

Carlos Body, the Minister of Economy, responded to a question on Tuesday about whether or not the Executive was contemplating taking any action to avert the tax rise by stating that this alternative was not being considered. “Not only does this have to do with the recent evolution of climatic conditions, but it also has to do with the high penetration of renewables, due to the commitment to renewables that is being made and that is already having clear effects,” the minister stated during the conference news conference that followed the Council of Ministers.

VAT on electricity returns at 21% after falling prices.

However, in February, it registered an average price of forty euros, which is a condition that the decreased rate throughout 2024 is contingent upon the megawatt-hour exceeding forty-five euros.

By knl9j

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