AleaSoft Energy Forecasting, November 7, 2025. The Tax on the Value of the Production of Electrical Energy (IVPEE for its Spanish acronym), known as the 7% tax, has been one of the most significant fiscal measures in the Spanish electricity system over the past decade. Since its creation in 2012, its application has gone through several phases of suspension and reactivation, reflecting the evolution of the energy and economic context of the country.
Origin of the IVPEE and initial objectives
The IVPEE was created by Law 15/2012, of December 27, on fiscal measures for energy sustainability, setting a 7% tax rate on the value of electricity production fed into the system.
Its stated purpose was to contribute to the financial sustainability of the electricity system and reduce the accumulated tariff deficit, which by the end of 2011 had reached approximately €24 billion, according to data released by the Spanish Government.
Since its entry into force in January 2013, the tax has been applied to gross revenues from electricity sales, without taking into account operating or investment costs, which makes it a broad‑based tax.
Temporary suspensions and regulatory adjustments
Since 2018, the IVPEE has been subject to various suspensions and extensions enacted through Royal Decree‑laws, with the aim of easing pressure on electricity prices for industry and household consumers during periods of high wholesale market volatility.
The first suspension of the tax occurred in October 2018. Royal Decree‑law 15/2018, of October 5, temporarily suspended the tax for six months, from the fourth quarter of 2018 to the first quarter of 2019.
In 2021, Royal Decree‑laws 12/2021, of June 24, and 17/2021, of September 14, established an exemption from the IVPEE during the second half of 2021, from July to December, in response to the increase in wholesale prices caused by higher gas and CO2 emission allowance costs.
Subsequently, Royal Decree‑laws 29/2021, 6/2022, 11/2022 and 20/2022 extended the suspension of the tax continuously until December 31, 2023.
These measures sought to contain electricity prices for end consumers by allowing generation plant bids to be more competitive in the market.
Gradual recovery in 2024
Royal Decree‑law 8/2023, of December 27, established the progressive reactivation of the IVPEE during 2024. Although the statutory tax rate of 7% was maintained, the Government temporarily reduced the taxable base. During the first quarter of 2024, the base of the tax was reduced by 50%, resulting in an effective rate of 3.5%. In the second quarter of 2024, the reduction was lowered to 25%, leaving the tax at 5.25%, and since July 1, 2024, the full 7% rate has applied without reductions.
The CNMC (National Commission on Markets and Competition) issued adjustment resolutions to adapt the remuneration of facilities affected by these temporary reductions, ensuring accounting consistency in regulated payments.
Legal validity and European backing
The IVPEE has been the subject of several legal challenges since its entry into force. The Court of Justice of the European Union (CJEU), in its judgment C‑220/19 of March 3, 2021, confirmed that the tax does not contravene European Union law, as it is not considered an indirect tax on energy consumption.
Similarly, the Spanish Supreme Court, in its ruling of June 17, 2021, upheld the legality and constitutionality of the IVPEE, rejecting claims that it violated the principle of economic capacity or constituted double taxation.
Sectoral debate and reform proposals
Although the tax has overcome legal challenges, it continues to be a matter of debate within the Spanish energy sector. Renewable energy associations and various economic research bodies argue that its application on gross revenues reduces the competitiveness of generation technologies with lower margins, such as solar photovoltaic and wind energy.
In January 2025, the Foundation for Applied Economics Studies (FEDEA for its acronym in Spanish) published a working paper proposing the abolition of the IVPEE and its replacement with alternative temporary charges that would maintain the financial sustainability of the electricity system without penalising investment in clean generation.
Perspective: towards taxation adapted to the energy transition
The 7% tax was designed in a context of tariff deficits and regulated prices, but today’s electricity system operates under liberalised market rules and European integration. In this scenario, the debate no longer focuses on the legality of the tax but on its economic appropriateness and consistency with decarbonisation and competitiveness objectives.
The discussion on the future of the IVPEE is part of a broader review of energy taxation aimed at balancing the financial sustainability of the system with the incentives required to achieve climate goals and attract investment in clean technologies and storage.
Final reflection
From a market perspective, the elimination of the IVPEE could help to improve the competitiveness of electricity generation projects in Spain, particularly renewable energy technologies, by reducing fiscal costs that directly affect investment returns. This would translate into more efficient prices in the wholesale market and a more favourable signal for investment in new renewable capacity and storage.
However, its removal should be accompanied by an alternative mechanism that ensures the financial sustainability of the electricity system and prevents the reappearance of tariff deficits. In this regard, the most appropriate solution would be a comprehensive review of electricity sector taxation, adapted to the objectives of the energy transition and the current market structure.
The accuracy of AleaSoft Energy Forecasting’s forecasts and the upcoming webinar on energy markets and storage
The recent verification of the Iberian electricity market price forecast prepared in 2010, which reached its horizon in October 2025 with a deviation of €0.88/MWh, reaffirms the robustness and reliability of the Alea methodology for anticipating long‑term energy market trends. This result demonstrates the ability of AleaSoft Energy Forecasting’s models to accurately represent market balance, even in a context of profound transformation of the electricity system and the ongoing energy transition.
Long‑term forecasts are an essential tool for the planning and financing of renewable energy projects, and their accuracy is key to reducing uncertainty and strengthening confidence in investment decisions across the energy sector. This success case confirms that AleaSoft’s forecasts continue to be a benchmark for reliability and scientific rigour in Europe.
In line with this commitment to providing up‑to‑date analysis and insight into the sector, AleaSoft Energy Forecasting will hold a new webinar on energy markets, batteries and hybridisation on November 13, 2025. This session will cover the prospects for European electricity markets, energy price trends, the role of batteries and energy storage in the transition towards a more flexible and sustainable system, and the opportunities offered by the hybridisation of renewable technologies.
AleaSoft Energy Forecasting’s webinars have become a leading forum for energy sector analysis, offering a comprehensive view based on data, long‑term forecasts and more than two decades of experience in energy modelling and consulting.
Source: AleaSoft Energy Forecasting.
