Introduction
Network tariffs, often also known as network charges, are charges added to the final electricity bill to pay for the investments into the grid, alongside general maintenance, and operation. These are collected by both the system operators for the transmission system (TSO) and distribution system (DSO), where the calculation for how these revenues are collected is set by the national regulator.
Historically, network tariffs have been “flat”, meaning a household, business, or industrial actor pays a set price for each unit of electricity consumed, with the principle that the more you use the grid, the more you pay for it, with a slight incentive to reduce consumption to support energy savings. However, this is set to change across Europe, with good reason.
As more wind and solar is connected to the grid, we need to both invest in the expansion and modernisation of our electricity networks, while also efficiently using what we already have. Already we are seeing connection queues for new renewables and electrified demand (heat pumps, EVs, etc.) to come online, which risks slowing down the energy transition. Reforming network tariffs can ensure the money is available for grid expansion and modernisation, while also incentivising efficient use of our electricity networks, to keep costs down and the transition moving forward.
What is required is to move towards a more reactive energy system, one where electricity users can rapidly respond to the conditions of the grid, shifting consumption to periods of lower grid congestion, self-consuming at optimal times, using power when the grid is available, and injecting renewable power when the grid has space, so affordable renewable power can be accessed most efficiently.
Network tariffs should not be confused with the move towards more dynamic “electricity tariffs” which play a similar, and complimentary role. Whereas network tariffs focus on the health of the grid in a certain moment (i.e. is there space on the grid for electricity, or is it very congested?), dynamic electricity tariffs aim to capture the availability of low wholesale market prices, often a result of excess renewable power, and to encourage users to consume during periods of high winds or plentiful sun. Both systems working in tandem can allow for the operation of a highly renewable and efficient power system.
In order to encourage the shift to more reactive network tariffs, the European Commission published alongside its Electrification Action Plan the Proposal to Future-proof Electricity Bills in the EU, aimed to reform network charges. The European Commission also published guidelines for Member States.
