Spanish industry wins on budget funding but loses on tax

SPAIN: Spain's ruling conservative People's Party (PP) has dropped a controversial proposal to transfer funding for 38% of renewables support from electricity bills to the annual state budget. The ruling came from energy taxation legislation approved by Spain's lower house of parliament in November.

The wind industry had opposed the measure, designed to reduce Spain's €24 billion electricity deficit, because it would have exposed renewables support to annual political horse-trading.

The Spanish renewables association APPA had warned that budget funding would also be seen as state aid, creating legal uncertainty that would kill off any future investment. Opposition Socialist Party energy spokesman Jose Segura said that he believes the finance ministry persuaded the parliamentary party to drop this proposal because of its incompatibility with EU law.

The approved text of the sustainable energy legislation does, however, maintain a controversial across-the-board 6% tax on all forms of electricity production, including wind power. This and a series of other taxes affecting gas, coal, hydro and nuclear energy are to be ring-fenced to finance the electricity deficit.


"A flat-rate 6% tax does not promote the use of environmentally-sustainable energy nor the rational use of energy," said Segura. "This legislation is being fast-tracked through parliament before submissions from affected sectors have been received. To properly tackle the electricity deficit the government should have presented to parliament a root-and-branch reform of the electricity market," he added.

The impact of the tax on the wind power sector will depend on whether the new taxation is incorporated into the market price for electricity, an industry source told Windpower Monthly. If this occurs the tax would be neutral for the sector, he predicted.

"However, the combination of the new tax plus regional and local taxation and the moratorium on feed-in-tariffs for new capacity will make new investment in wind power impossible from next year," he said.

"Although costs have dropped, the market price would have to rise to around EUR70/MWh from the current EUR54/MWh to make wind production profitable in the ordinary electricity market," he estimated.

The energy taxation legislation is not expected to undergo radical change when it is debated by Spain's upper house.