In the past, the chief source of support to fossil-fuel production was the financial assistance to the country’s hard-coal mining industry. Under this scheme, the government compensated coal companies by covering the difference between their high operating costs and the prices at which coal was sold to local power plants, with mandatory purchase volumes set by the government. This compensation mechanism ended in 2014, which accounts for the downward trend in producer support observed since 2009.
The Spanish government announced its compliance with EU regulations (Decision 2010/787/UE) about the closure of non-competitive coal mines by the end of 2018. In this context, the government signed an agreement in October 2018 with mining unions and companies to support a just transition in the affected coal mining regions over the 2019-2027 period by promoting alternative development projects towards environmentally sustainable industries, funding social welfare benefits for early retirement and redundancy payments of affected workers and supporting the environmental restoration of closing coal mines sites.
As of December 2018, state aid to non-competitive coal mining ended and subsequently closed.
In 2020, the COVID-19 pandemic precipitated changes to be made to the Demand Side Response measure (Servicio de Gestión de la Demanda de Interrumpibilidad). As a response to the adverse economic impact of the pandemic, the Government decided to suspend the activation of the management service based on economic criteria. However, a new backup mechanism called the "Rapid Response Strategic Reservation Service" was created in place of the service. Under this new scheme, service allocation will be through an auction mechanism in which a minimum of 1 MW per block of power will be put in place coinciding with the calendar year (1 January to 31 December).
Through Royal Decree-Law 11/2020, of 31 March, urgent complementary socio-economic measures were adopted to deal with COVID-19, namely the suspension in the updating of regulated prices of LPG cylinders and the natural gas rate of last resort (TUR). Another measure that the government adopted in response to the pandemic was to create an “electricity voucher” granting a direct discount on electricity bills aimed at users in vulnerable situations as well as the non-suspension of supply during the country’s state of alarm declaration.
On 24 June 2021, the Spanish Government adopted a Royal Decree Law 12/2021 including a series of tax and market measures to address price increases. Among these is the reduction of electricity VAT rate from 21% to 10% for customers with less than 10 kW of contracted power until 31 December 2021 and the temporary suspension of the generation tax (7%) until 30 September 2021. In October 2021, a new Royal Decree (Law 23/2021) was adopted increasing the social bonus to vulnerable consumers from 25% to 60% and from 40% to 70% for severely vulnerable ones until 31 March 2022. The budget for the thermal social bonus was doubled in 2021, rising to EUR 202.5 million to help vulnerable families to face rising electricity and gas tariffs. This last Royal Decree Law also introduced some exemptions to the application of the temporary reduction of market revenues for non-CO2 emitting power plants.
To mitigate rising energy prices in the wake of the large-scale aggression by Russia over Ukraine, the Spanish government approved further measures. In December 2022, Spanish Prime Minister Pedro Sánchez unveiled a €10 billion programme with some measures, including an extension of the reduced energy taxes. The VAT on electricity remained at 5% (compared to the usual 10%). The generation tax was abolished.
The programme includes a further EUR 6 billion in direct aid and rebates combined with EUR 10 billion in credits, with direct support for businesses across multiple sectors (transport, food and energy intensive sectors). Of this new package, the transport sector is the main beneficiary receiving a minimum fuel bonus of EUR 0.20/litre until 30 June. Freight and passenger transport companies will also receive EUR 450 million worth of direct aid. The remaining part of transfers to the economy will be split as follows: EUR 362 million for the agriculture and livestock sector, EUR 68 million for the fisheries sector, over EUR 500 million in aid to large electricity consumers, and EUR 125 million for the intensive gas industry. Since April 2022, all types of motorists (private and businesses) are also being reimbursed EUR 0.20/litre of gasoline and diesel at petrol stations until the end of June 2022, of which the government finances EUR 0.15 while oil companies cover EUR 0.05 of the discount. Some of these measures remain in force. Until 31 December 2023, electricity, natural gas and water supplies may not be suspended to consumers who are vulnerable, severely vulnerable or at risk of social exclusion.
The fiscal cost of support measures for fossil fuels in Spain was estimated at EUR 13.01 billion in 2022 (Table 1). Sixty-seven per cent (67%) was directed at end user beneficiaries, as opposed to 33% directed to firms. Support was mainly given out in the form of tax expenditures (EUR 10.27 billion) accounting for 79% of the total fiscal cost of support measures. Direct transfers amounted to EUR 2.73 billion.
The fiscal cost of support measures for fossil fuels has increased by 678% since 2017. Since last year, tax expenditures have increased by 820%, from EUR 2.81 billion to EUR 10.27 billion and direct transfers increased by 387%, from EUR 0.34 billion to EUR 2.73 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.
