Spain backtracks over levy on electricity companies’ ‘excess profits’

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Spain’s leftwing government has backtracked on a high-profile levy on electricity companies’ “excess profits” after the sector said the measure put future investment at risk.

A government decree this week revised the rules for the levy, which officials had previously forecast could be worth between €2.6bn and more than €5bn during the six months it would have been in force but which is now set to raise a fraction of that amount.

The move comes as Spain faces pressure from other fronts over its stance on electricity prices, a red-hot political issue domestically. Spain was isolated at an EU ministers meeting this week when it suggested revisions to the bloc’s energy pricing regime.

The excess profits levy was at the heart of Pedro Sánchez’s government’s effort to contend with record-high electricity prices — which in turn are largely caused by the soaring price of gas.

But, in an interview with the Financial Times, Ignacio Galán, chair and chief executive of Spanish utility Iberdrola, said as a result of this week’s changes the levy’s impact on his group would be “null or minimal” — essentially because the tax will no longer be applied when electricity is sold on the long-term market at fixed rather than spot rates.

He added that €114m of provisioning that Iberdrola put aside in September to pay for two weeks of the levy would now be returned to the group’s general funds by the end of the year. Iberdrola had previously expected the levy would cost it €2bn during the six months to the end of March.

The government, which has accused the electricity companies of opacity, maintains it is too soon to predict the changes’ impact.

The levy was designed to hit energy groups that benefited from high electricity prices but whose costs were not affected by the rising price of gas.

Ignacio Galán, chair and chief executive of Iberdrola, said that as a result of this week’s changes the levy’s impact on his group would be ‘null or minimal’ © Simon Dawson/Bloomberg

However, energy companies argued that not only did the levy jeopardise future investment, but that, as originally framed, it was imposed on fictitious profits, since most electricity is sold on the forward market — a factor taken into account by this week’s changes.

“For those of us who have sold all our energy at fixed prices — and for next year we have 96 per cent of our contracts sold at fixed prices not linked 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 users.

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

Noting Iberdrola’s worldwide investments this year of €10bn, not including an €8bn acquisition in the US, he said: “We can only raise this demanding quantity of funds if there is stability, predictability and rule of law.”

Iberdrola, the world’s third-biggest utility and a self-styled champion of renewables, had been at the forefront of denunciations of the levy, which was also fiercely criticised by groups such as Endesa, the Spanish subsidiary of Enel, and Eurelectric, the pan-European industry group.

Endesa has now welcomed the revisions to the levy as “rational”.

Spain’s leftwing coalition had intended to use the funds to help shield consumer from rising prices, in a country where tariffs paid by 40 per cent of households are linked to spot market rates. According to Standard & Poor’s research, even before the pandemic Spaniards spent proportionally much more than elsewhere in Europe on electricity — an average of more than 8 per cent of net disposable income.

Adding to the pressure on the Spanish government, Algeria, the country’s main gas supplier, has said it will close a pipeline via Morocco from Monday, although it plans to keep Spain supplied using a lower-capacity pipeline that does not pass through its North African rival, with which it cut diplomatic ties in August.

Source: Financial Times

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