Tax on wind and sun: a harmful interventionism

“Silver linings may disappear but they always shine”. Ronnie James Dio.

Do you remember the left tearing its clothes with a non-existent tax on the sun that only affected installations of more than 10Kw? Well, that same left has just implemented a imposed on the wind and the sun for real that has already left brutal consequences on independent companies.

The wholesale price in Spain is not the highest in Europe. Both the daily market and especially the futures market show that the price in Spain is better than in Italy -where they have public electricity and gas-, Franca, Germany, the United Kingdom, and the same as Portugal.

The daily wholesale electricity price that monopolizes daily headlines affects 12% of the electricity sold. Coincidentally, the social and political alarm has been generated by two decisions that are completely the responsibility of the Sánchez Government:

1. He decided to set the price of energy on the daily market when hundreds of experts recommended that he set the 2019 prices with futures contracts and it is a decision that is 100% up to the Government. Spain is the only country that has a regulated tariff exposed to the ups and downs of the daily market.

I write to you from Lisbon where there is no political randomness and assaults on legal security because the energy term of the regulated tariff is set in the three-month futures market that can be reviewed. Spain is the only country that has a regulated tariff exposed to the ups and downs of the daily market. The Sánchez government preferred to tie it to the daily price because it would think it would go down. Now electricity costs millions of people twice as much.

2. The Sánchez government was the one that changed the tariff tranches to make those with more consumption much more expensive and more difficult to save for the citizen. Today, the cheap tranche is almost as expensive as the most expensive in 2019.

Spain is the only country that has a regulated tariff exposed to market fluctuations. The Government of Sánchez preferred to tie it to the daily price

These two decisions they took them for political activism and ignorance added to the arrogance.

They have now launched a ax to generation which is less than 30% of the rate while keeping regulated fixed costs and taxes almost intact, which are 70%.

The starting situation was very clear when it came to providing solutions. Both have been ignored by Sánchez and Podemos:

An electricity bill with a very high weight of costs not related to the supply (more than 50%) that artificially raise the price of electricity, affecting the budget of families and the competitiveness of the industry.

A government regulated tariff (PVPC), subject to the volatility of the daily market, which exposes consumers to such volatility, unlike in Europe, where regulated tariffs are indexed to the forward markets.

The Government has imposed a series of interventionist and absurd measures:

A charge to non-emitting plants that tries to reflect the supposed higher income obtained from the increase in the price of gas compared to a price of € 20 / MWh of gas.

However, it is calculated as if they sold the generation in the daily market, ignoring that most of the production (65%) is already sold to end customers at much lower prices. Even worse, where did they get that nobody was going to be able to set the price of gas at 20 euros when it has risen 200% in the international market?

Insufficient fiscal measures. Reduction of the IE from 5.11% to 0.5% and extension of suspension of the Tax on the Value of Electric Power Production (7%) until the end of the year, increasing by 900 million euros the contribution of the State in auctions of CO2.

The Government refuses to release the goose that lays golden eggs of taxes in the rate. It will raise more than 2.3 billion euros from the sale of CO2 emission rights -a hidden tax that has risen 300% by artificially limiting the supply of states- and more than 10,000 million euros in hidden and visible taxes (60% taxes on nuclear, 25% on hydraulic, VAT on all components and others).

The State collects in the tariff more than double in taxes than the entire operating profit of the electricity sector in Spain (generation, commercialization and distribution).

The State collects in the rate more than double in taxes than the entire operating profit of the electricity sector in Spain

The announced measures have generated legal uncertainty, crash in the markets and announcements of imminent bankruptcies in up to 21% of renewables. And the Government, seeing the destruction created, backslides and changes, stating that the hack will not affect the PPA (medium-term purchase contracts) of renewables. In other words, if a renewable energy company incorporates the price of gas and CO2 in a medium-term contract, it is not a “profit from the sky” but if it does so for daily sale, it is.

No measure solves the problems mentioned and maintains fiscal plunder in the rate.

It does not solve the volatility or price increase that the regulated market is suffering, since they only foresee that the regulated PVPC rate will be index by 10% to the price of forward auctions, and is not immediate, but is subject “to regulatory development.” Speculating that it goes down. See how they did in January.

It has already been shown that attacks the necessary investments in clean generation, making them unviable in the short term, eroding the confidence to attract capital with a long-term useful life and sinking the access to financing of independents, as has been shown by the renewables sector that warns of 21% of companies on the verge of bankruptcy.

It is not isolated. The increased regulatory risk and randomness because of the absurd government interventionism it is transferred to all economic activity.

Spain becomes the only country where it pollutes, pays, and he who does not pollute, pays more. Clean energy is harmed and fossil fuels are favored, which will not only increase prices, but also emissions. In addition, it puts a floor to the wholesale price, which became negative in 2019 due to the beneficial effect of the marginal market.

Regulatory risk doesn’t just affect those who trade today. The Local and international investors know that the Government will make random decisions and confiscatory as soon as it is slightly pressured by conjunctural effects.

Clean energies are harmed and fossil fuels are favored, which will not only increase prices, but also emissions

Today the daily wholesale price only affects 12% of the electricity consumed since the rest is contracted with a long-term fixed price (much lower). With this measure they make everyone else see their high bill to force marketers to review their contracts, which will be more expensive, before a totally dynamited system.

With this interventionist nonsense, all consumers with signed long-term contracts (stable, with reasonable prices agreed with marketers) will be subject to an upward revision, replacing the fixed price with a reflection of the fluctuations in the daily price.

As an example, a free market contract at € 40 / MWh, (renewable PPA) must pay (gas at € 60 / MWhg – € 120 / MWhe) € 80 / MWh for this new charge, double the sale price. This happens regardless of the modality that has been contracted, or who the counterpart is.

However the revenue cut applies to 85% of energy (only excludes combined cycles) even if it sells long-term.

Above one loss of 7,500 million euros of capitalization in two days of actions, destroying pensioners and savers who are the ones who buy these securities the most because they are “stable”.

To do?

The Government should have removed the costs not linked to consumption (3,400 million euros) from the tariff and passed them on to the State Budgets. You will say that it is the same and it pays the same, but a state that is financed at 0.3% over 10 years with enormous fiscal space granted by the EU is not the same as a family or company drowned by expensive and anti-electricity. competitive.

The Government should have removed costs not related to consumption from the tariff and passed them on to the Budgets

The Government should have used the 2.3 billion euros collected for CO2 emission rights to mitigate the rise in the regulated tariff, as recommended by the European Commission. It doesn’t and keeps the goose that lays golden eggs from selling CO2, a disguised tax.

The Government should have set 100% of the energy term of the regulated rate to the futures market with a formula like that of Portugal, which can be reviewed quarterly and with a band. None of this was prevented by the law of the electricity sector of the PP. Any.

Government should have abolished the tax on the value of electricity production (1,600 million) and the extraordinary tax on nuclear and hydraulic power. And the VAT reduction should have been generalized to all consumers (now it is only one part), another 2,000 million euros.

Nevertheless, keeps the chain of overlapping taxes which makes it collect twice the operating profit of the sector in Spain. The biggest beneficiary of the increase in electricity is the Government, by levying on the price of each component and adding taxes on taxes.

These solutions they would have actually lowered the price of electricity by 23%, without destroying legal security and independent renewables. I would have done it immediately and not with the trilerism of “hitting the price of gas” today to charge you in March, which is what they have done, that is, repeat the disaster of the tariff deficit that reached 30,000 million euros in the time of Zapatero.

Sánchez and Podemos with their interventionist nonsense of the imposed on the wind and sun they have sowed alarm, legal uncertainty, and on top of that made medium-term contracts for renewables more expensive and most likely put a floor at the wholesale price. There were and are serious solutions, but – again – the Government has preferred to sink companies than to provide real solutions.

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