Network tariffs are price components paid by electricity consumers to finance the past and future costs of building, and the cost of operating the electricity grid (Commission Staff Working Document "Best practices on Renewable Energy Self-generation", 15 July 2015, COM(2015) 339 final, p. 8).
Operators' costs are recovered mainly by tariffs for use of the networks, but also through other mechanisms, such as connection charges, regulated services or contractual arrangements with industrial customers and generators flexibility services (Electricity Distribution Network Tariffs CEER Guidelines of Good Practice, 23 January 2017, Ref: C16-DS-27-03, p. 6).
Tariff's fixed component that is typically charged for services such as metering and other administrative costs.
Connection charges only apply to new entrants, whereas "G-charges" apply to all generation, including established generators.
Network tariffs are levied by the Transmission System Operators (TSO) and Distribution System Operators (DSO) and are regulated in the context of the EU Electricity Directive (2009/72/EC).
What are transmission tariffs?
Electricity transmission tariffs are used to recover the costs of providing electricity transmission services. Internationally, there are many different systems of electricity transmission pricing and associated tariff structures.
For example, it is possible to charge both electricity generators and load/end-consumers for the provision of transmission services. However, there are many different definitions and approaches that can be applied to the basis on which both electricity generation and load users are levied for those services. For example, deep or shallow connection charges can be used to recover the costs of new parties connecting to the network or a use of system (access) tariff used as the principle cost recovery tool. Transmission tariffs can also be levied on a capacity (MW) or production/consumption basis (MWh).
The types of cost recovered through transmission tariffs can also differ depending on the transmission pricing system adopted. Transmission tariffs are typically used to recover the fixed capital and operating (infrastructure) costs of providing the transmission network and also the costs of connecting new users (generation and load) to the network. However, in some tariff systems, ancillary service costs and losses may also be either totally or partially charged through transmission tariffs, rather than through market mechanisms.
Scoping towards potential harmonisation of electricity transmission tariff structures, Conclusions and next steps, August 2015, Final Report, Cambridge Economic Policy Associates Ltd, p. 1
The latter leaves room for the European Union Member States to develop their own grid tariff methodology, reflecting the particularities of national electricity systems.
As a consequence, European countries differ both in the share of costs that are recovered from generation and load, and the basis on which tariffs are determined.
Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity on conditions for access to the network for cross-border exchanges in electricity, was adopted as part of the Third Energy Package to facilitate a competitive and integrated energy market across the EU.
This sets out a series of common objectives for transmission network access charges in Europe including, among other things, promotion of transparency, the need to take into account network security, and tariff structures which reflect actual/efficient costs, are non-discriminatory, non-distance related and, where appropriate, provide locational signals.
Commission Regulation (EU) No 838/2010 of 23 September 2010 on laying down guidelines relating to the inter-transmission system operator compensation mechanism and a common regulatory approach to transmission charging specifies guidelines on a common regulatory approach to electricity transmission charging, including allowed ranges for the annual average transmission charges levied on generators in each EU Member State.
These allowed ranges for European Member States "G-charges" include a number of exemptions for:
- charges paid by generators for physical assets required for connection to the system or the upgrade of the connection;
- charges paid by generators related to ancillary services; and
- specific system loss charges paid by generators.
ACER Programming Document 2017 - 2019, September 2016 (p. 56) mentions ACER plans to initiate work on a common set of transmission tariff principles (starting in 2016).
The objective of this work is to establish and adopt a harmonised set of transmission tariff principles, allowing an efficient balance between the Internal Energy Market goals.
Cost reflectivity: For efficient use and development of the grid, as far as practicable, tariffs paid by network users should reflect the cost they impose on the system and give appropriate incentives to avoid future costs
Non-distortionary: costs should be recovered in ways that avoid distorting decisions around access to and use of the network, and market offers
Cost recovery: DSOs should be able to recover efficiently incurred costs. As well as tariffs for use of the distribution system, DSOs may also recover costs through connection charges and regulated services
Non-discriminatory: there should be no undue discrimination among network users
Transparency: the methodology for calculating tariffs should be transparent and accessible to all stakeholders
Predictability: it is important that network users can effectively estimate the costs of their use of the distribution system, facilitating efficient long term investment by network users. However, the changing nature of the energy system means network tariffs will need to evolve over time
Simplicity: As far as possible tariffs should be easy to understand and implement. The simpler they are, the easier they are for network users to respond to
Source: Electricity Distribution Network Tariffs CEER Guidelines of Good Practice, 23 January 2017, Ref: C16-DS-27-03, p. 7
Network tariff's classifications
The most prominent tariff's classification is the distinction between capacity tariffs and volumetric tariffs.
This differentiation is based on whether tariffs are levied on a MW (capacity) or MWh production/consumption (commodity).
Capacity tariffs depend on the peak load as grid costs are mainly capacity driven.
Therefore consumers with high peak loads pay the highest network costs.
Different models of capacity tariff exist:
a) flat: a fixed charge based on connection capacity (kVA) or measured capacity (kW);
b) variable: different capacity with different tariff per level; and,
c) time-of-use: different tariffs in line with the available grid capacity (peak/off-peak), requiring a smart meter.
Volumetric tariffs are charged for each kWh of electricity consumed from the grid and are easier to implement with conventional meters.
Volumetric tariffs can be:
a) proportionate: consumers pay per kWh, independent of volume level;
b) progressive: the tariff per kWh increases with an increasing consumption level;
c) regressive: the tariff per kWh decreases with an increasing consumption level; and,
d) time-of-use: different tariffs in line with the available grid capacity (peak /off-peak).
A day/night tariff is possible without smart meter whereas more complex peak and off-peak tariffs are only possible with smart meters.
Hybrid models combining both capacity and volumetric tariff also exist.
The document of Cambridge Economic Policy Associates Ltd of August 2015 “Scoping towards potential harmonisation of electricity transmission tariff structures, Conclusions and next steps, Final Report“ refers in this regard to following examples:
- in Spain and in Italy the electricity distribution grid tariff for household customers consists of three components: a flat component (€/point of delivery), a component billing the connection capacity (€/kW), and a progressive volumetric component (€/kWh);
- for an average Italian household consumer, about 80% of the whole electricity bill is volume related and 20% capacity based;.
The combination of volume and capacity elements is also currently applied for industrial consumers in other countries like Belgium, France and the Netherlands.
Most EU Member States currently charge grid costs through volumetric grid tariffs, although there is increasing interest in charging part, or all, of such costs through the capacity component of the tariff.
Other tariffs' classifications are based on the following determinants:
1. Depending on whether transmission tariffs are levied on generation or load (or both), and whether they apply to embedded generation;
2. Differentiating between transmission tariffs driven by locational signals and uniform ones;
3. With respect to locational transmission tariffs they may differ either by node or by zone;
4. Depending on whether transmission tariffs provide economic incentives for time of use of the transmission network;
5. Depending on the types of cost the transmission tariff recover.
Network tariffs in the Winter Energy Package
The European Commission's Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), 30.11.2016, COM(2016) 861 final 2016/0379 (COD) includes a specific part on charges for access to networks (Article 16) - see box below.
Article 16 of the Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), 30.11.2016, COM(2016) 861 final 2016/0379 (COD)
Charges for access to networks
1. Charges applied by network operators for access to networks, including charges for connection to the networks, charges for use of networks, and, where applicable, charges for related network reinforcements, shall be transparent, take into account the need for network security and flexibility and reflect actual costs incurred insofar as they correspond to those of an efficient and structurally comparable network operator and are applied in a non-discriminatory manner.
In particular, they shall be applied in a way which does not discriminate between production connected at the distribution level and production connected at the transmission level, either positively or negatively. They shall not discriminate against energy storage and shall not create disincentives for participation in demand response.
Without prejudice to paragraph 3, those charges shall not be distance-related.
2. Tariffs shall grant appropriate incentives to transmission and distribution system operators, over both the short and long term, to increase efficiencies, including energy efficiency, foster market integration and security of supply, and support investments and the related research activities.
3. Where appropriate, the level of the tariffs applied to producers and/or consumers shall provide locational signals at Union level, and take into account the amount of network losses and congestion caused, and investment costs for infrastructure.
4. When setting the charges for network access, the following shall be taken into account:
(a) payments and receipts resulting from the inter-transmission system operator compensation mechanism;
(b) actual payments made and received as well as payments expected for future periods of time, estimated on the basis of past periods.
5. Setting the charges for network access under this Article shall be without prejudice to charges resulting from congestion management referred to in Article 14.
6. There shall be no specific network charge on individual transactions for cross-border trade of electricity.
7. Distribution tariffs shall reflect the cost of use of the distribution network by system users including active customers, and may be differentiated based on system users' consumption or generation profiles. Where Member States have implemented the deployment of smart metering systems, regulatory authorities may introduce time differentiated network tariffs, reflecting the use of the network, in a transparent and foreseeable way for the consumer.
8. Regulatory authorities shall provide incentives to distribution system operators to procure services for the operation and development of their networks and integrate innovative solutions in the distribution systems. For that purpose regulatory authorities shall recognise as eligible and include all relevant costs in distribution tariffs and introduce performance targets in order to incentivise distribution system operators to raise efficiencies, including energy efficiency, in their networks.
9. By [OP: please add specific date – three months after entry into force] the Agency shall provide a recommendation addressed to regulatory authorities on the progressive convergence of transmission and distribution tariff methodologies. That recommendation shall address at least:
(a) the ratio of tariffs applied to producers and to consumers;
(b) the costs to be recovered by tariffs;
(c) time differentiated network tariffs;
(d) locational signals;
(e) the relationship between transmission and distribution tariffs, including principles relating to non-discrimination;
(f) methods to ensure transparency in the setting and structure of tariffs;
(g) groups of network users subject to tariffs, including tariff exemptions.
10. Without prejudice to further harmonisation by way of delegated acts pursuant to Article 55 (1)(k), regulatory authorities shall take the Agency's recommendation duly into consideration when approving or fixing transmission tariffs or their methodologies in accordance with Article 59(6)(a) of [recast of Directive 2009/72/EC as proposed by COM(2016) 864/2].
11. The Agency shall monitor the implementation of its recommendation and provide a report to the Commission by 31st January each year. It shall update the recommendation at least once every two years.
The said Proposal of 30 November 2017 in Article 55(1)(k) also stipulates that the European Commission is empowered to adopt delegated acts concerning the establishment of network codes in the area of rules regarding, among others, "harmonised transmission and distribution tariff structures and connection charges including locational signals and inter-transmission system operator compensation rules".
In response to the said legislative proposition the Council of European Energy Regulators (CEER) recommended, however, that both the network code on transmission and distribution tariffs in Article 55 of the Electricity Regulation, and the ACER recommendation for a progressive convergence of distribution and transmission tariffs methodologies in the aforementioned Article 16, should be removed.
It is the CEER's stance, that there is no need for an EU-wide tariffs network code.
CEER disagrees with the proposed “one-size-fits-all” prescriptive approach to network tariffs in all EU Member States through a network code.
CEER argues that this would prove to be highly complex and would remove the ability of energy regulators to design/facilitate network and connection tariffs based on the differing network circumstances and the needs of local consumers.
Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast), Recitals 39 - 40, Recital 63
To provide for a level playing field between all market participants, network tariffs should be applied in a way which does not positively or negatively discriminate between production connected at the distribution level and production connected at the transmission level. Network tariffs should not discriminate against energy storage, and should not create disincentives for participation in demand response or represent an obstacle to improving energy efficiency.
In order to increase transparency and comparability in tariff-setting where binding harmonisation is not seen as adequate, a best practices report on tariff methodologies should be issued by the European Agency for the Cooperation of Energy Regulators (‘ACER’) established by Regulation (EU) 2019/942 of the European Parliament and of the Council.
To ensure the smooth functioning of the internal market for electricity, provision should be made for procedures which allow the adoption of decisions and guidelines with regard, inter alia, to tarification and capacity allocation by the Commission whilst ensuring the involvement of regulatory authorities in that process, where appropriate through their association at Union level. Regulatory authorities, together with other relevant authorities in the Member States, have an important role to play in contributing to the proper functioning of the internal market for electricity.
Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market in electricity (recast),
Member States should put in place appropriate measures such as national network codes and market rules, and should provide incentives to distribution system operators through network tariffs which do not create obstacles to flexibility or to the improvement of energy efficiency in the grid.
Regulatory authorities should be able to fix or approve tariffs, or the methodologies underlying the calculation of the tariffs, on the basis of a proposal by the transmission system operator or distribution system operators, or on the basis of a proposal agreed between those operators and the users of the network. In carrying out those tasks, regulatory authorities should ensure that transmission and distribution tariffs are non-discriminatory and cost- reflective, and should take account of the long-term, marginal, avoided network costs from distributed generation and demand-side management measures.
Regulatory authorities should fix or approve individual grid tariffs for transmission and distribution networks or a methodology, or both. In either case, the independence of the regulatory authorities in setting network tariffs pursuant to point (b)(ii) of Article 57(4) should be preserved.
Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast), Recitals 39 - 40, Recital 63
Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market in electricity (recast), Recital 61, 81, 82
Distribution and Transmission Network Tariffs and Incentives, CEER White Paper series (paper # I) on the European Commission’s Clean Energy Proposals, 11 May 2017
Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity
Commission Regulation (EU) No 838/2010 of 23 September 2010 on laying down guidelines relating to the inter-transmission system operator compensation mechanism and a common regulatory approach to transmission charging
Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), 30.11.2016, COM(2016) 861 final 2016/0379 (COD), Article 16
Electricity Distribution Network Tariffs CEER Guidelines of Good Practice, 23 January 2017 (Ref: C16-DS-27-03)
Scoping towards potential harmonisation of electricity transmission tariff structures, Conclusions and next steps, August 2015, Final Report, Cambridge Economic Policy Associates Ltd
CEER Report on Investment Conditions in European Countries, Ref: C16-IRB-29-03, 24 January 2017
ACER Programming Document 2017 - 2019, September 2016, p. 56
Commission Staff Working Document "Best practices on Renewable Energy Self-generation", 15 July 2015, COM(2015) 339 final, p. 8