Article
Energy taxation in Spain: why taxing electricity hinders competitiveness
Iberdrola España will contribute €4.675 billion in taxes in Spain by 2025. Here we explain how the various tax burdens work and what they mean for Spanish competitiveness.
Director of Regulation at Iberdrola España
What is energy taxation, and what types of taxes are levied on electricity in Spain?
Energy taxation refers to the set of taxes, fees and levies applied to the production, distribution and consumption of energy. In Spain there are both national and regional taxes. In the former case electricity faces the same taxes as any other sector of the economy:
- Value-Added Tax (VAT) at its highest rate (21%), though it can be reduced to 10%.
- Corporate Income Tax.
- Economic Activities Tax.
But it is also subject to other specific charges:
- Tax on the Value of Energy Production (IVPEE). It is levied at 7% of the value of production.
- Special Tax on Electricity (IEE). It has been applied at a reduced rate (0.5%) since 1 March 2026 as an emergency measure under Royal Decree-Law 7/2026 of 20 March.
- Fee for the use of inland, surface and groundwater for energy production.
There are others, such as the tax on the production and storage of nuclear fuel and radioactive waste, in addition to all regional taxes, which are primarily environmental in nature.
Key points on energy taxation
Let's take a closer look. Historically, the taxation of gasoline, gas and electricity has been treated as distinct policy areas because they served different purposes:
- Electricity, for lighting and cooling.
- Gas, for heating.
- Gasoline, for transportation.
Technology now allows us to do almost anything with electricity. And yet according to the monthly barometer of major industrialists we get energy that is 40% cheaper but the final bill remains the same.
Spain has natural resources, an industry eager to participate and capital ready to invest — all unbeatable opportunities that we will lose if we do not adapt the appropriate regulatory framework to allow for greater investment in networks and revise electricity taxation so as not to penalize electrification. Infrastructure cannot limit Spain's industrial development.
This is a cross-cutting issue because small and medium-sized enterprises also depend on electricity to operate every day.
A lighter tax environment improves corporate balance sheets and keeps prices down for users. In other words: the tax burden results in a final bill that harms the country's competitiveness.
Patxi Calleja
Director of Regulation at Iberdrola España
Energy taxation and congestion on networks: the two barriers holding back Spain's competitiveness
The European Commission has noted that energy taxation has become a barrier to competitiveness. The EU Commission, through the Citizens' Energy Package, recommends reducing electricity taxation to the absolute minimum and eliminating costs unrelated to supply. The coordinated implementation of these measures, together with the proposals of the Clean Industrial Deal, would reduce the industrial electricity bill by 29%.
Tax revenue from electricity amounts to a loss of €14 billion in Spain, a country with a privileged position in the energy transition. However Spain taxes electricity six times more than imported energy (gas). It is as if strawberries produced in Huelva were taxed six times more than those imported from Morocco. It functions as a reverse tariff: we apply higher taxes to what is manufactured in Spain than to what we import.
This is a historic mistake that erodes our competitive advantage. In fact electricity is the third-most heavily taxed product in Spain, trailing only tobacco (80% of its final price goes toward taxes) and alcohol (40%), at 37%. If we want to reduce dependencies and emissions and leverage competitive advantages it makes no sense to tax electricity as if it were a harmful substance.
Grid congestion also undermines competitiveness. Spain has locally produced electricity that is competitive and represents a significant economic opportunity. But grid congestion creates a bottleneck preventing industries from seizing that opportunity and consuming that energy, so companies cannot invest or connect. An example: renewable capacity in Spain has quadrupled since 2019; the electrical network, however, has barely grown.
In 2024 only one in ten companies that applied was approved to connect to the electrical network. Each rejection means losing an investment project, losing jobs and tax revenue and, consequently, services and development. Regulations have limited investments in networks for years, although we view the initiative approved in Royal Decree-Law 7/2026 of 20 March — which reduces VAT on electricity bills — as positive. However, this regulation leaves us in the same position regarding imported energy and is temporary in nature: it expires on 30 June 2026.
Iberdrola España's position on energy taxation
The taxation applied to electricity in Spain penalizes an essential and predominantly domestic resource. Aligning this taxation with European standards and the country's true potential represents a strategic opportunity to drive growth, investment and energy self-sufficiency in the coming decades.
