Power bills have dropped 6.7% this month thanks to the government's decision to placate consumers. In the past five years they have seen power bills go up by 60%. The truth is that the recent price drop is a mere mirage. As elEconomista reported on March 21, the relatively lower power costs are going to last a short time before prices continue to rise so long as the energy sector cannot fix its tariff deficit problem. This deficit is upward of 28 billion euros.
So the Ministry of Industry should have kept power prices the same instead of lowering them. That would have helped power companies face a tax increase resulting from national energy reforms. Now these companies are going to have to lay off workers to make ends meet. Because of Manuel Soria's decision to tax power generation through sector-wide reforms, the cost of power for major companies will increase by 25%. This will have a boomerang effect on budgets. Until now, the cost of power in Spain was comparable to Germany. In futures contracts for 2014, 2015 and 2016, there is already a 10 euro/Megawatt price spread in Germany's favor. As a result, Spanish companies will see a significant competitive edge just when reducing costs is a critical factor in their ability to keep market share.
The Ministry of Industry's plans are not bearing fruit. The tariff deficit remains out of control and the sector is taking on more of the work to pay it down, which means that these companies and others who rely on power usage will be at a disadvantage. The government should skip the populist handouts if they undermine the ability to truly cut the nation's tariff deficit.
