Cost-reflectivity of Distribution Tariffs

14.3.2014 guenter.bramboeck@evn.at

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

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

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.

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

− services

5

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

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

´Current structure of el. distribution grid tariffs in EVN Group Austria fits on one page

8

Based on:

http://www.e-control.at/portal/page/portal/medienbibliothek/recht/dokumente/pdfs/SNE-VO-2012-idF-Novelle-2014_konsolidiert.pdf

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

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

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

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

Immediate starting of long-term process

12

No snowflake in an avalanche ever feels

responsible.

13