Solar Tax – A tax on the sun!

In 2015 Spain introduced a solar tax (‘impuesto al sol’) which taxed owners of solar panels on their consumption of electricity. The solar tax’s objective is to firstly, raise tax revenues to maintain Spain’s electricity network.  And secondly, to reduce demand for solar energy installations to prevent solar panels from overloading the country’s electricity grid. The Spanish pay the tax on every kWh of electricity produced by their plant at a rate equal to fifty per cent of the kWh price customarily paid to the electricity company.

The solar tax is justifiable on a fairness/equity basis as otherwise users of solar panels are using the electricity infrastructure but not contributing sufficient revenues to cover their share of the infrastructure costs. Other countries have dealt with this issue by increasing the electricity network connection fee, so all electricity users contribute to the cost of maintaining the electricity infrastructure.

As the solar tax only applied to systems of 10 kilowatts or above (which is double the power rating of the average Spanish home), almost no-one paid the tax. Out of 18.5 million Spanish homes, only 1,200 households ever listed their solar panels on the government’s solar self-consumption registry. Although the tax raised almost no revenue, it killed demand for solar tax installations. The uncertainty about how the tax worked, concern about future taxes, and the administrative requirements put households off solar installations.

In 2018 Spain removed the solar tax to encourage the installation of solar in homes and businesses, and reduce soaring power costs.