In the framework of the European Commission recommendations published on May 30, around sovereign stability, growth and employment, a clear concern about the removal of the incentives to renewables underlies, similarly to what all the companies represented by the associations have been demanding. We hope that this text, together with the contribution of the discussions being held with the Government, will encourage a major shift before the ship definitely runs aground.
Preliminary considerations on
taxes
Revenues from environmental taxes (in percent of GDP) were the lowest in the EU in 2010. A wide range of reductions and tax exemptions and harmful subsidies to the environment are in place. There is also room for manoeuvre for increases in excise duties on transport fuels (unleaded petrol and diesel).
Coal
Spain is preparing a Multi-Year Strategic Plan for the coal industry covering the 2013-2018 period which is still pending on publication. It is anticipated that the Plan includes details on how Spain expects to gradually reduce aids to the production of coal up to their suppression and to shut-down coal mines by 2018.
Waste and water
Economic instruments for waste management that increase the attractiveness of the prevention and recycling and help cover the costs of collection, sorting and recycling will constitute favorable tax measures for the growth of these alternatives and may also contribute to the sustainability of local public finance institutions. The same applies to the rates paid for water consumption, the lowest in the EU. In particular, some water pricing regional policies offer farmers little
incentive to reduce their water use in irrigation.
Greenhouse gases emissions
Although in Spain in 2010 the emissions were 4% lower than in 2005, according to the latest Spanish projections, emissions are expected to decrease by 9.7% in 2020 compared to 2005, leading to a shortfall of the target by less than one percentage point.
Energy efficiency and renewable
Spain has adopted an appropriate mix of policy measures on energy efficiency and support for renewable energy sources in order to achieve its 2020 targets. However, the electricity tariff system in Spain remains inefficient and presents an insufficient level of
competition.
Spain has traditionally capped end-user prices of electricity to several consumer groups under a regulated tariff system. The tariffs do not always cover the costs, so that a so-called “tariff deficit” is generated within the system at the expense of utilities. With the costs of generation and regulated costs (eg transport and distribution costs) rising faster than the tariff, the deficit has significantly increased in recent years, reaching a cumulative amount of EUR 24 000 million (more than 2% of GDP). Two thirds of this amount (approximately 17 000 million) are guaranteed by the government, which has allowed utilities to securitize it. In 2009, the Government revised the whole tariff system with the aim of ensuring that electricity prices cover total costs. However, low-consumption households (representing 83% of consumers) were still allowed to pay electricity prices that did not fully reflect the overall costs of the system under the so- called “last resort tariff”. As a result, the tariff deficit continued to build up.
In January 2012, the Government temporarily suspended renewable energy premiums paid to newly-built plants (wind, solar, biomass and hydro technologies) in an attempt to reduce electricity costs and thus the electricity tariff deficit. Suspending support for renewables discourages investment in the sector and will make it hard to achieve Spain”s
target under the Europe 2020 energy and climate goals. Moreover, with less renewable energy in the mix, Spain’s dependence on imported energy would further increase from the current 79 % (which is already much higher than the EU average of 54 %).
Streamlining complex authorisation and planning procedures and removing other barriers to the growth of renewable energy can help reduce the cost of renewables, which remains an issue for Spain.
In March 2012, the Government adopted further measures to reduce costs in the electricity sector by EUR 1 700 million, e.g. distribution, transmission, capacity payments, financing the regulator CNE, an interruptible tariff and a slight reduction of subsidies for coal. It also increased tariffs (around 7 % for the tariff of last resort), thus
generating an additional income of around EUR 1 400 million. The Government also adopted legislation to completely take on board the EU’s internal energy market legislation, in particular strengthening the powers of the Spanish national regulatory authority. This is
expected to enhance competition. While cutting electricity costs should
help reduce the tariff deficit, the increase in tariffs for consumers may hinder domestic consumption and reduce firms” external competitiveness.
Weak competition in the energy sector has contributed, at least partly, to building the tariff deficit by favouring overcompensation to certain utilities, such as nuclear and large hydro power generators which have already been paid for, or by sustaining inefficient and environmentally harmful energy subsidies to coal mines. These measures have not been translated into lower prices, and they thus hinder economic growth. Indeed, Spain has one of the lowest levels of interconnectedness in the EU. Completing electricity and gas
interconnectors with France and Portugal, currently under construction, would help to intensify competition in the energy sector. Increasing the electricity network”s capacity for cross-border exchanges, notably with France, will allow Spain to increase its trade with neighbouring countries and balance the supply of renewable electricity such as wind. Indeed, the low cross-border transmission capacity has contributed to a waste o
resources in renewable utilities, which have to plan heavy investments in expensive backup power (i.e. for wind power), such as gas-fired capacity, and in transmission networks. Giving priority to developing the Africa-Spain-France gas corridor and establishing a functioning Iberian gas hub (Mibgas) would foster competition between gas companies, increase market liquidity and help diversify and secure gas supplies.
