Article
Energy taxation in Spain: why taxing electricity hinders competitiveness
Iberdrola España contributed €4.675 billion in taxes in Spain in 2025. Here we explain how the various taxes on electricity 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 in addition electricity 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 adds another 5.5% to the consumer's final bill.
- Fee for the use of inland, surface and groundwater for energy production.
And there's more, such as the tax on the production and storage of nuclear fuel and radioactive waste, in addition to numerous regional taxes.
And it's not just taxes. The electricity bill also includes many other costs unrelated to the electricity supply, which stem from energy or social policy decisions. Among them are the regulated feed-in tariffs for renewable energy facilities to meet Spain's 2020 environmental targets; the historical deficit in the electricity sector caused by the failure to update electricity prices between 2002 and 2013; the additional generation costs in the Canary Islands, of which the General State Budget covers only 50%; and the financing of the social electricity subsidy, among others. All of this artificially inflates the cost of electricity.
Key points on energy taxation in Spain
Let's go to the root of this distortion. Historically the different taxation of gasoline, gas and electricity reflected their different uses: each energy source served a distinct function in the economy and households:
- Electricity, for lighting and cooling.
- Gas, for heating.
- Gasoline, for transportation.
That logic is now outdated. Today technology allows us to do almost anything with electricity, enabling this domestic energy source to serve as a substitute for imported gas and gasoline in both industrial processes and end-use consumption.
However the tax system remains the same as in the past, artificially driving up the cost of electrification and fostering the country's energy dependence. According to the monthly barometer of major industrialists the cost of electricity in Spain is 40% cheaper than in Germany but that competitive advantage is diluted in the final bill due to the weight of taxes and surcharges.
Spain has natural resources, an industrial base and capital ready to invest. This is an extraordinary opportunity that we cannot afford to let slip away.
And it doesn't just affect large industry. Small and medium-sized enterprises are also heavily impacted. Put another way the tax burden on electricity results in a final bill that harms the country's competitiveness and prevents us from leveraging our competitive advantage — our natural resources.
Energy taxation and congestion on electrical networks: the two barriers holding back Spain's competitiveness
The European Commission has already noted that energy taxation has become a barrier to the continent's competitiveness. Through the Citizens' Energy Package, the EU executive recommends reducing electricity taxes 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 approximately 30%.
The government's additional revenue from taxes and charges associated with electricity amounts to €14 billion per year. For a country with a privileged position in the energy transition, this extra cost translates into a direct loss of competitiveness for the economy as a whole.
Patxi Calleja
Director of Regulation at Iberdrola España
Thus electricity produced in Spain pays six times more in taxes and charges than imported energy (gas). It is as if strawberries produced in Huelva paid six times more in taxes than imported strawberries from Morocco. It functions as a reverse tariff: we apply higher taxes to what is manufactured in Spain than to what we import, condemning ourselves to continue importing and remaining vulnerable.
This is a historic mistake that erodes our competitive advantage and hinders progress toward greater energy autonomy — a key factor in the current international context. If we want to reduce our dependence on countries with fossil fuel resources it makes no sense to impose tax penalties on the energy that can help us achieve that goal. Electricity is the energy we have in Spain, which gives us security and independence from third parties.
In fact electricity is the third-most heavily taxed product in Spain (37% of its final price consists of taxes), trailing only tobacco (80%) and alcohol (40%). We tax our natural resources as if they were harmful substances, imposing far higher taxes than those levied on the fossil fuels that other countries possess and that we import.
Iberdrola España's position on energy taxation
The taxation applied to electricity in Spain penalizes an essential and predominantly domestic resource. Adjusting this taxation to avoid discriminatory treatment between energy sources that are currently substitutes presents a strategic opportunity to drive growth, investment and energy independence in the coming decades.
