January 24, 2021

Portugal will give direct help to households in the face of escalating prices in the electricity market that it shares with Spain


The Portuguese Government is preparing an extraordinary aid to temporarily cover about 10% of the electricity bill for homes in the country in full price escalation in the electricity wholesale market that it shares with Spain.

Portugal cuts its electricity bill at prices below the European average and increases the gap with Spain

Portugal cuts its electricity bill at prices below the European average and increases the gap with Spain

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Measure, advanced this Tuesday by Expresso, will be in force during the new generalized confinement of the population that is expected to take effect this Thursday and whose approval is finalized by the Portuguese Executive to face the expansion of coronavirus cases, at a time of high prices in the wholesale market electricity that Portugal shares with Spain through the so-called MIBEL (Iberian electricity market)

This extraordinary discount of 10% on the invoice will have an estimated cost of between 20 and 25 million euros per month. It is intended to apply to all domestic consumers, without distinction between their income level. It will also benefit vulnerable households benefiting from the social rate, equivalent to the Spanish electricity social bond.

The discount will be accompanied by the setting of a new maximum price for the butane cylinder. It will be in force for the duration of the new generalized confinement that the Portuguese Council of Ministers plans to approve this Wednesday in the face of the escalation of coronavirus cases in the country. After Christmas, the cumulative incidence of cases in Portugal has skyrocketed and threatens to collapse its health system. This Tuesday, the daily maximum number of cases and deaths from COVID-19 was beaten, with 155 deaths in one day.

The measure will have retroactive effect from January 1 and will be applied at a time when prices in the Iberian wholesale market are at historically high levels, in a context of strong demand, a cold wave, low wind energy production and high prices of the gas and emission rights in international markets.

In Spain, the average price of a megawatt hour (MWh) in the wholesale market for this Wednesday it will become more expensive another 6.7% and chain three days to the rise, to stand at 89.94 euros per MWh, one of the highest in the historical series and the second most expensive so far in January, after the peak last Friday. In the case of Portugal, the price for this Wednesday is even higher and stands at € 91.42 / MWh, although it is below of the maximum of 94.99 euros per MWh that it registered in both countries last Friday, when a historic snowfall started in the center of the Peninsula.

VAT drop

This extraordinary discount of the domestic invoice in Portugal is added to the reduction of the VAT of the electricity in force since last December 1, by which a reduced VAT of 13% is applied (the general rate there is 23%) to certain components of the bill for domestic consumers with up to 6.9 kilowatts contracted. This measure, according to the Executive, benefits 5.2 million contracts that correspond to about 86% of the low voltage customers in the neighboring country.

In 2019, the VAT for the fixed part in the lowest powers (up to 3.45 contracted kilowatts) was already cut from 23% to 6%. In that year, Portugal managed to cut its electricity bill at prices lower than the European average, deepening the final price differential with Spain.

This Tuesday, the Spanish Minister of Finance and Government spokesperson, María Jesús Montero, insisted in the press conference after the Council of Ministers that the current rise in the price of electricity “is temporary and punctual” and that the Executive He “works tirelessly” so that at the end of the year the receipt is cheaper than the previous one. But it has ruled out a reduction in its VAT, since, it has assured, “it would not be in line with what is marked by Europe.”

Montero recalled that Spain is warned by the European Commission “for abusive use” regarding reduced or super-reduced VAT, thus ruling out a reduction of this item for the price of electricity, which currently in Spain is 21 %, compared to other goods considered essential that have a lower tax.

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