David Robinson & Associates

Specializing in public policy and corporate strategy in the energy sector.

Over 50% of Spanish electricity prices reflect taxes and the cost of government policies

  • Costs of supply electricity in the EU have risen slowly since 2008, but final electricity prices have risen much faster.

  • The difference is a “government wedge” that includes taxes and subsidies for a range of public policies, including support for renewable power, cogeneration, fossil fuels, specific industries and consumer groups.

  • This wedge is becoming important in many EU countries, especially in Spain and Germany.

  • Small consumers are generally paying the bulk of these extra costs.

  • In Spain, this government wedge accounted for over 50% of residential tariffs in 2012.

This report compares final electricity prices among EU countries and shows that the government wedge largely explains price trends between 2008 and 2012.  The wedge reflects taxes, levies and other charges that governments recover through the electricity tariff and that they use to finance the central budget as well as specific programs, including support for renewable electricity, cogeneration, certain customer categories, specific fossil fuels and other public policies.

While average wholesale prices have not risen and average EU network costs have risen modestly over the period, the average government wedge has increased significantly, and indeed by over 50% in some EU countries.  Those countries with the highest prices tend to be the ones with the largest government wedge; this is typically associated with strong support for renewable power, notably in Germany and Spain. 

Residential consumers bear most of these extra costs in absolute terms, with the government wedge accounting for more than 50% of a residential consumer's electricity price in Spain in 2012. Industrial consumers in Spain have also seen rapid growth in the wedge, which could be hurting their competitive position.  

The report calls for greater transparency over what policy costs are being recovered through tariffs, who is bearing those costs and who is benefiting. It also calls for some of the policy costs to be recovered through central government budgets and through environmental taxes. And it recommends a rethink of EU policy on energy and climate change so as to enable competitive markets, rather than governments, to drive investment decisions.

Link to report (in Spanish)