The reduction of VAT on natural gas to 5% will also apply to pellets, briquettes and firewood

The Council of Ministers, at the request of the Ministry for Ecological Transition and the Demographic Challenge, the Ministry of Finance and Public Administration, and the Ministry of Economic Affairs and Digital Transformation, has approved a Royal Decree-Law with several energy-related measures, such as reducing VAT from 21% to 5% on supplies of natural gas, pellets, briquettes, and firewood , with savings for consumers of around 210 million eur ; the possibility for cogeneration to temporarily leave its regulated remuneration scheme, so that the Iberian Mechanism applies to it; and the creation of a new active demand response service that will increase the flexibility and security of the electricity system.

The reduction of VAT from 21% to 5%, the minimum rate authorized by EU legislation, will benefit all natural gas supplies, including those intended for boilers in apartment buildings. The reduced rate will apply to deliveries, imports, and intra-EU acquisitions of natural gas until December 31, 2022 , facilitating access to this essential supply as winter approaches and providing consumers with an estimated savings of €190 million.

The tax reduction will also apply to pellets, briquettes, and firewood —eco-friendly alternatives to natural gas derived from biomass and used in heating systems—whose prices have risen considerably with the approach of winter. This will provide consumers with an estimated savings of €19.4 million.

AVEBIOM considers this measure necessary and demands that it be permanent.
Regarding this, the Spanish Biomass Association (AVEBIOM) believes that the reduction of VAT on solid biofuels—pellets, firewood, and briquettes—to 5% is essential and demands that it be permanently implemented. The Association has repeatedly requested this tax reduction over the last 15 years; most recently this past September, along with other business associations such as APROPELLETS, ASEMFO, the Bioenergy Cluster of Catalonia, and the Biomass Cluster of Galicia, arguing the social, economic, and environmental benefits that the measure would bring to all Spaniards, whether or not they are direct consumers of biomass.

According to Javier Díaz, president of AVEBIOM , this decision “will undoubtedly encourage more citizens to choose biomass as a way to obtain renewable and sustainable energy in their homes and businesses.” He adds that “the VAT reduction should be made permanent, since biomass is a domestic renewable energy source that can replace imported fuels, bringing economic benefits to users and companies in the sector and improving the country's trade balance.”

Reactivation of cogeneration
Cogeneration plants use a fuel (mainly natural gas, but also other liquid fuels or biomass) to simultaneously produce electricity and heat useful for industrial processes.

The current price situation in energy markets has led to the shutdown of more than half of Spain's installed cogeneration capacity in August . This has a very negative impact on the most heat-intensive industrial sectors, and also represents a loss of energy efficiency for the economy, since the energy not produced by cogeneration is replaced by other technical solutions—combined cycle plants and gas boilers—which have a lower overall energy efficiency.

To resolve this issue, cogeneration plants may temporarily opt out of their regulated remuneration scheme , thus falling under the scope of the Iberian Mechanism and receiving the adjustment paid to gas-fired power plants. This temporary opt-out may be requested while the Iberian Mechanism remains in effect.

A cogeneration plant produces heat and electricity simultaneously, more efficiently than generating heat and electricity separately, resulting in primary energy savings of around 10%. Therefore, restarting idled cogeneration plants will provide savings that could reach 1.2% of daily gas demand in the best-case scenario.

This measure complements others previously approved to support energy-intensive and gas-intensive industries , such as an 80% exemption from toll payments, maximizing compensation for the cost of CO2 emissions from electricity, public guarantees for signing long-term energy supply contracts, and direct payments to companies. In total, these subsidies amount to more than €1 billion in 2022.

Active Demand Response:
The Royal Decree-Law also creates a new active demand response service that will increase the flexibility and security of the electricity system. It will allow for the resolution, with maximum technical efficiency and the least possible environmental impact, of significant deviations between generation and consumption that occur in the time period immediately preceding the supply hour, or even during the supply hour itself. This service may be provided by demand providers in exchange for revenue awarded through annual auctions.

Red Eléctrica, as the System Operator, will manage the new service and launch the annual auction, in which all demand units—retailers and direct consumers—larger than 1 MW can participate. The first auction will be held very soon, because the new service must be operational before November 1st, in preparation for the winter season.

The regulations approved by the Council of Ministers include other measures that will facilitate the growth of renewable energy generation. For example, they establish new, more flexible criteria for determining the capacity of transmission networks, which can vary in a matter of months, days, and hours, always respecting the installation's thermal limits. They also streamline and simplify administrative procedures for generation projects, such as those related to identifying legally, economically, and technically capable companies, or consultations between different public administrations.