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Spanish Prime Minister Pedro Sanchez said on Thursday that the government is currently “redesigning” its windfall tax on the excess revenues of energy companies, who, he claimed, were earning extraordinary profits during the energy crisis “for doing nothing”.
In an interview with Spanish TV channel Antena 3, Sanchez stated that Europe’s energy policy, along with Spain’s renewables policy, have contributed to a decrease in electricity bills and a containment of energy prices, despite them still remaining high. He further emphasised the need for an energy policy that encourages and incentivises large-scale investments in renewable energy to support industrial projects.
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Because of this change of circumstances, the Spanish government is now working to redesign the windfall tax with the aim of incentivising investments in industrial projects, Sanchez said.
The industrial projects he was referring to are green hydrogen corridors, wind and solar farms large enough to power factories, large-scale decarbonisation projects and energy transition initiatives in areas that depended on the now closed coal-fired power plants.
The temporary windfall tax, approved by Spain’s Senate in December 2022, takes a 1.2% off the energy revenues of over EUR 1 billion (USD 1.08bn) generated in 2022 and 2023. The tax is paid in 2023 and 2024, and the proceeds have been meant to pay for measures to mitigate the effects of the energy crisis on vulnerable households.
The tax applies to all energy companies, regardless of whether they use renewables or fossil fuels to produce energy. The revenues from abroad and from the regulated business in Spain, such as grids and power and gas retail at regulated prices, are exempt from the tax.
One of the harshest critics of the windfall tax has been Spanish multi-energy major Repsol SA (BME:REP), which paid EUR 7.44 billion in taxes in Spain between January and September 2023 and threatened to look for alternative countries such as Portugal.
In October, when Sanchez negotiated with the left-wing party Sumar to secure support for another term as prime minister, he agreed to a “revision” of the taxes on energy companies, among other taxation measures. Seeing the move as a possible prolongation of the windfall tax, Repsol said that the country’s see-sawing on regulatory and fiscal matters could impact the company’s future industrial projects in Spain.
“The possibility of maintaining a tax on energy companies, which was designed to be temporary and extraordinary, punishes companies such as Repsol that invest in industrial assets, generate employment and guarantee the country’s energy independence. Instead, it benefits importers that do not generate employment or relevant economic activity in Spain,” Repsol said.
When Sanchez was asked in the interview to comment on Repsol’s and other companies’ complaints that Spain lacks a stable legal framework for investment, he argued that the proof is in the pudding, alleging that 20% of all global green hydrogen projects are located in Spain.
“And that has a lot to do with legal certainty,” he said.
(EUR 1.0 = USD 1.076)
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