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The evolution of residential network tariffs in Europe - the opinion of energy experts

Historically, network tariffs job has been to finance the maintenance, upgrade and operation of the electricity grid. However, as the energy transition unfolds, tariffs are starting to have another job as an additional instrument for DSOs (distribution system operators, also known as distribution network operators) to operate the electricity grid by influencing consumers’ consumption. At Delta-EE, we see three ways for DSOs to untap the flexibility potential from customers, with tariffs being one of them. The additional two refer to participating in flexibility markets or direct control of customers assets.

This process is being reflected in the revision of residential network use of system charges in different countries. Part of this transition looks at fine-tuning established tariff schemes as fixed or a static time-of-use (where electricity retailers are charged differently at different times of the day to use the distribution network).

However, new models are also being tested and discussed, such as a greater focus on capacity charges, introducing a locational element in the tariffs or moving toward a more dynamic approach. In Europe, countries are considering, developing and implementing different tariff schemes, which offers a variety of approaches we can consider when searching for the optimal solution.

We are researching this topic as part of our Distribution Network Service, focusing on the European low voltage residential level. As part of this research, we drew five LinkedIn polls addressing different aspects of network tariffs. The table and graph below display the questions and poll results.

Q1

Will capacity become an increasingly important part of network tariffs in Europe?

Q2

Will the spread in time-of-use network tariffs grow in the future?

Q3

Will dynamic time-of-use network charges be introduced in this decade?

Q4

Will residential tariffs ever have a locational element to reflect physical network costs?

Q5

Network tariffs or flexibility platforms. What will have a greater impact on the operation and management of the network?

a table showing the results of a LinkedIn poll

In Europe, residential network tariffs have historically been dependent on the energy consumption of consumers. However, with new technologies spreading as RES, EVs, heat pumps and storage, tariffs can be an instrument for increasing flexibility in the system by influencing consumer behaviour on a large scale. Further improvement in the operation is then achieved via flexibility platforms or, as a last resource, direct control of the assets.

One opportunity countries are investigating is to majorly weigh the tariff structures on the capacity element of the demand for improving the network operation by lowering peaks during the day. When asking our respondents whether they foresee the capacity term to become an increasingly important part of the network tariffs, the respondents largely agreed with 90% of them considering it an essential element for the future energy system.

Time-of-use (ToU) has been used for a long time in some countries. This tariff differentiates the consumption in different time zones during the day, month and year, motivating the consumer (or retailer) to shift the demand towards off-peak and less expensive times. Until today, ToU tariffs were mainly day-night or seasonal tariffs. However, various countries are refining them by adding more time zones, making them more cost-reflective and precise at the cost of more complexity for the user. As displayed by Q1, all the people participating in this poll consider ToU tariffs a necessary element for the energy system.

Thanks to the smart meter rollout in Europe, more precise measurement with increased granularity is possible. The users could now be charged depending on the actual measured consumption. However, it is not a realistic scenario yet as elements such as smart meters, smart loads and HEMS are mandatory requirements for a similar charging system, requiring investments from end-users. Answering our second question, 73% of the respondents believe that a dynamic tariff structure will be introduced within this decade, with a minority disagreeing or not being sure.

One more element that DSOs can consider for the framing of network tariff is the differentiation of charges based on location. It is not a widespread solution in Europe and offers advantages but also many possible issues. For instance, locational pricing can introduce more cost reflectivity and highlight to DSOs congested areas. However, it could also penalise the users regardless of their energy behaviour, thus creating price unfairness. Over half of our respondents foresee a locational element in the future network tariff, with slightly less than half not agreeing or not being sure. Although over half of the participants show a positive vision on this topic, we see that there is much less consensus on this topic compared to others.

Finally, our last question broadens the focus of the survey by enquiring over another tool DSOs use to improve the network operation: flexibility platforms. With these platforms, participants can offer flexibility to the DSOs who can then use it to manage their network. When asked which one between network tariffs and flexibility platforms will have a bigger contribution to the management and operation of the network, the opinions were relatively balanced. Slightly more than half of the respondents believes that flexibility platforms will have a greater impact. Only 18% of participants instead foresee a major role for network tariffs, while 30% considers them both having equal importance in the future.

It is insightful to realise how energy experts show similar or different opinions on the topics we covered with this poll. The Distribution Network service team is finalising this research on network tariffs at the residential level and will publish it in the coming days. A follow-up blog article will follow after completing the research for a further discussion on this topic including some of the findings.

Stay tuned.

 

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Friday, 21 January 2022

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