VAT on electricity returns to 21% starting today, which will make the average annual bill 15% more expensive

The price of electricity closed February at an average lower than the 42 euros per megawatt/hourits lowest price in three years, which will mean that in March electricity will once again be taxed with a VAT of 21%, compared to 10% to date.

The impact of increasing the Value Added Tax (VAT) from 10% to 21% will mean for an average annual invoice of a customer type a 15% increasegoing from 467 euros to 539 euros annuallyaccording to sector data.

In a matter of a year, the final consumer could even see their electricity bill increase by 25% (117 euros more per year) due to the increase in taxes, according to sector calculations.

The price of electricity in the wholesale market during this February has been particularly low, thanks to intense weather in sun and, above all, in windwith many hours in which the cost was zero and with average daily prices that during the last week have not exceeded ten euros.

The average price of electricity in the ‘pool’ ended February very close to the 41,245 euros per MWhcompared to 132.7 a year ago, or 74 last January.

Its about cheapest month since February 2021, when the average price in the wholesale market was 28.5 euros. A month later, in March, the average price was 44.45 euros and from then on electricity began to rise in price to the all-time high in March 2022, coinciding with the start of the Russian offensive in Ukraine.

Last Wednesday electricity was a 92.9% cheaper than a year agowhen an average of 132.68 euros/MWh was paid, a price higher than the annual maximum reached in 2024 to date, with 113.83 euros/MWh.

Two months ago, the Spanish government extended the tax reduction in the electricity bill that was boosted as a result of the price increase generated after the start of the Russian offensive on Ukraine, which has just completed two years.

The rule established the VAT on electricity would go from the 5% at which it was then to 10% and that it would remain there throughout the year 2024. However, the caveat was added that when the arithmetic average price of the daily market corresponding to the last calendar month prior to the last day of the billing period was less than 45 euros per MWh.

The VAT increase will apply to all types of contracts of electricity, although it is expected that the most affected will be consumers with contracts in the free market – generally with fixed rates, since those who have a regulated rate – among them the lowest incomes and large families – will see this increase cushioned by the low prices.