The Economist undresses the Sanchez Government

The price of gas has led to lower profits for electricity companies, as is natural, since gas itself is the cost and 75% of the contracts are fixed. On the other hand, oil and gas companies are making money. However, the Spanish government points out that the ones to be taxed are the electricity companies and look the other way in the case of the oil companies.

The Economist says that taxes on energy companies' skyrocketing profits are a bad idea (sic): "whenever oil and gas are expensive, politicians' eyes turn avidly to the profits of energy companies. Since energy prices started to rise last year, Bulgaria, Italy, Romania and Spain have introduced new taxes on the industry. On March 8, the European Commission recommended that governments try to "capture a share of the returns" realized by power generators. And in the United States, 12 Democratic senators, including Elizabeth Warren, once a presidential candidate, have proposed a tax on each barrel of oil produced or imported by large companies, equivalent to half the difference between the current price of oil and the 2015-2019 average."

For The Economist, it is about the typical greed of politicians to spend and spend: "the urge to levy "windfall profits taxes" is particularly strong today because Russia's invasion of Ukraine, has caused oil and natural gas prices to soar and then gyrate wildly, giving the impression that companies are profiting from the bloodshed. Governments, which have run up huge debts during the pandemic, must now find more cash to protect poor consumers from skyrocketing energy bills and to boost defense spending."

For The Economist to impose windfall profits taxes is a mistake. "First for the fact that energy markets go through boom and bust cycles. The years Warren has chosen as a benchmark were not good: in two of them, 2015 and 2016, the net operating margin of the global listed energy industry was negative. There was another year of operating losses in 2020, during which the oil price briefly fell below zero due to the pandemic. If companies have to ride out the bad times, but find that some of their profits run out of their money when prices rise, their businesses lose viability."
 
What is clear is that the electricity companies are not even seeing their profits rise, but have been hit by cost increases that have cut their bottom line. Even so, the Spanish government wants to tax those companies that make Spain an energy power in the future (Iberdrola). 

For The Economist: "they want to put companies like BP, whose boss recently said that high prices had turned the company into a "money machine", out of business. But today's energy crisis shows that the world needs a carefully managed phase-out of carbon emissions, not a sudden halt to investment in fossil fuels, especially if Europe is to wean itself off Russian gas."
 
On this point, The Economist notes, "renewables cannot immediately replace gas for some tasks, such as heating homes with gas boilers. Even if the infrastructure to run entire economies on electricity were in place, battery storage is still unable to fill the gaps when the wind doesn't blow and the sun doesn't shine. Nuclear power plants provide a steady supply, but take years to build."

So there is the paradox, according to this business paper: "The European Commission says that renewable producers, who also benefit from the high prices, should also pay. This is doubly wrong. If even clean energy companies have their profits confiscated during periods of scarcity, the incentive to solve the problem of intermittency of renewables, for example by improving batteries or storing energy as hydrogen, will be weakened. And it is not just energy shortages that must be solved as economies move toward net zero. The private sector will have to find ways to avoid shortages of everything from the minerals used in electric cars to the balsa wood used in wind turbines. It is a fantasy to think that the large investments that are needed will happen if the most innovative companies worry that their profits could be seized when their bets pay off."

On that note: "The thorniest argument is that companies are profiting from the war. Windfall profits taxes live up to their name when companies have profited not from wise decisions, but from unforeseeable events unrelated to their investment choices. However, geopolitics is a major concern for large energy companies, which must install pipelines that cross borders and anticipate global energy needs well in advance. There is nothing unusual for a conflict to affect their profits, and the risks posed to Europe by Russian gas have been obvious for years. Giving up the rewards offered for energy supplies during today's shortage will only make the next supply shortage, even a predictable one, worse."
 
In Spain the situation is even more serious given that it is the non-profits of the electricity companies that are to be taxed.