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Cost-reflectivity of Distribution Tariffs


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Guenter Bramboeck presents on distribution tariffs at the Vienna Forum on European Energy Law, 2014

Published in: Law
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Cost-reflectivity of Distribution Tariffs

  1. 1. Cost-reflectivity of Distribution Tariffs 14.3.2014
  2. 2. Distribution tariffs and cost-reflectivity Cost components to be covered Grid levels and cost shifting Tariff structure and allocation of costs Objectives to be pursued Impact of liberalization – unbundling Impact of reorientation of power generation Smart metering and new opportunities? Tariffs as interface between grid customers and transmission system Conclusions 2
  3. 3. Cost components to be covered Mainly capital costs (depreciation and interest) and operational costs Costs shifted from transmission based on same elements Other system costs (ancillary service, etc.) Energy costs for losses, as far as acknowledged Impairments as far as acknowledged Other minor cost components Incentives (quality of service, losses, etc.) Fixed costs count for appr. 90% of total expenditures 3
  4. 4. Grid levels and cost shifting 4 Transmission Substation MV grid Trafostation LV grid HV grid Connected customers Connected customers Connected customers Connected customers Connected customers These grid levels have to be reflected in tariffs as minimum. Currently just general 3 levels applied in EnC region.
  5. 5. Tariff structure and allocation of costs Tariff structure should reflect the main fields of possible cost-effective reaction of customers. The structure is main basis for cost- reflectivity Cost drivers: allocation of costs defines to a great extent the system efficiency Keep it simple but effective Possible separation within distribution grid − (Deep) connection fee according to maximum demand − Use of grid in capacity charge and TOU volumetric − Metering, billing etc. − Grid losses, − reactive energy 5
  6. 6. Objectives to be pursued Consideration of demand habits in design of connection fee (door keeper function) Reflection of capacity costs by demand charge and TOU Consideration of customer potential to react (load management) Reflection of sharing of costs according to ownership border Consideration of special tariffs for flexibility (interruptible consumption for DSM) Reflection of simultaneously occurring peak demand of many small customers 6
  7. 7. Impact of liberalization – unbundling Separation of distribution tariff by simple reduction of unified volumetric price leads to distortions in remaining regulated tariff Price and cost hikes for customers pushed to the open market if no swift adaption is practiced Passed down subsidies get more obvious and will be criticized by customers Grid tariffs do no longer support well- behavior of customers to limit costs Higher forecast risk for separated losses 7
  8. 8. ´Current structure of el. distribution grid tariffs in EVN Group Austria fits on one page 8 Based on:
  9. 9. Impact from reorientation of power generation Liberalized market changes location of generation Climate actions lead to distributed generation (mainly PV) and change use of grid and invoiced volumes Additional investment in distribution grid causes high investments to be allocated in a cost-reflective way Fluctuating RES (wind, PV) demand flexibility on demand side – tariff structure with price for interruptible supply as precondition for demand side management 9
  10. 10. Smart metering and new opportunities? SEE region widely applies sort of SM in risk quarters for less losses and better collection Smart metering initially causes costs of about 250 – 350 EUR/meter including ICT Smart technologies would make sense only on the basis of smart tariffs Smart tariffs or price products should include offers to customers with clear and sustainable benefit Standardized load profiles get obsolete Reasonable model for combination of SM and tariff structure still not available anywhere 10
  11. 11. Tariffs as interface between grid customers and transmission system Power system is extremely high complex due to multiple interference with fairly hard to communicate cost structure but improvement opportunities by tariff structures Caused costs cannot be calculated on the bases of an individual customer RES generation cause additional costs in the grids  setting the optimal incentives is a big challenge Local load may not coincide with system load Tariffs will always be a compromise though with optimization potential 11
  12. 12. Conclusions and remarks Tariff structure essential for system efficiency Complexity has to be brought down to cost drivers and customer applicability Primitive grid price structure as seen currently in EnC region might become threat soon Real costs have to be acknowledged by regulators to avoid worsening of the service but incentives are important and effective Unresolved social policy via electricity prices is increasingly endangering security of supply Top-down development (big to small customers) highly accepted in practice 12
  13. 13. No snowflake in an avalanche ever feels responsible. 13