Why is VAT on electricity changing so much?

On 1 July, the government announced that VAT on electricity would be reduced again to 10%, after a few months at 21%. This is a measure that aims to reduce citizens’ electricity bills, in response to the constant increase in electricity prices.

Increase in electricity prices in June

The rise in electricity prices of up to 85% in June has led the government to implement anti-crisis measures affecting millions of consumers across Spain.

At the end of June, the average price of electricity stood at over 45 euros per megawatt-hour (MWh). Specifically, the daily price on the Spanish wholesale market reached 56.08 euros/MWh, which represents an increase of 84.47% compared to May, when the price was 30.40 euros/MWh, according to data from the ASE Group.

In response to this situation and in a month characterised by high temperatures and a higher demand for electricity, VAT on electricity bills has been reduced again to 10% with the aim of easing the economic burden on consumers.

Evolution of VAT on electricity in 2024

VAT on electricity is regularly modified in response to various economic and social factors, and 2024 has been no exception.

These changes reflect the government’s policy of using VAT as a flexible tool to respond to changing economic and social conditions, ensuring both economic stability and the well-being of citizens.

Throughout this year, changes to VAT on electricity have been constant. In early 2024, the government decided to reduce VAT from 21% to 10% due to an increase in electricity prices during the winter months.

In the spring of 2024, when energy prices stabilised somewhat, VAT went back up to 21%. This decision was taken to help balance public finances and reduce the deficit, taking advantage of the fact that electricity prices were lower at the time.

However, at the start of the summer, electricity prices rose again due to a combination of heat waves and increased energy demand, which has led to yet another change in VAT, which now stands at 10%.

Solar energy as a solution

Electricity prices change according to the season, renewable energy generation and demand.

Summer and winter are the months where we see high demand for air conditioning and heating, which drives up electricity prices. During spring and autumn, prices tend to be lower and more stable due to lower demand and higher production of renewable energy such as solar, hydro and wind.

To avoid these fluctuations in electricity prices, generating your own solar power is the solution.

By installing solar panels, you can harness sunlight to generate your own electricity, protecting you from price fluctuations and ensuring a steady and reliable supply of energy over the long term. If you want to avoid price fluctuations and generate your own power at home, contact us for a personalised, free, no-obligation quote.