How to incentivise efficient grid use using grid tariffs

28. August 2019 | News
Power cable

Capacity-based grid tariffs are becoming more common. In a report for the Swedish Energy Market Inspectorate, we find both tariff design and the implementation process to be critical to success.

The Swedish Energy Market Inspectorate, Ei, has been tasked with developing regulations on grid tariff design aimed at realising a more efficient utilisation of the grid.

As part of this work, Ei asked Thema to produce a report on the design and regulation of grid tariffs. Based on interviews with Swedish and international grid companies and energy regulators, and a review of the relevant literature, the report provides an overview of experience with different types of tariffs and tariff regulation intended to improve the efficiency of grid use.

Efficient grid tariffs should finance total grid costs and provide price signals for the efficient utilisation and development of grid capacity. This means that grid tariffs should sometimes include price signals to incentivise changes in grid customers’ patterns of electricity consumption. One example of such signals is the implementation of capacity tariffs when there is a risk of a capacity shortage on the grid. However, before capacity tariffs are implemented, both the capacity situation and the flexibility of grid customers’ peak load should be assessed.

In order for price signals to provide the desired effects, it is crucial that customers understand how they can adapt their consumption patterns to support efficient grid utilisation or that automated solutions to manage load patterns can be installed.

Regulators in different countries impose very different regulations that entail varying degrees of freedom of choice for both grid companies and grid customers. We have surveyed experience of the regulation in Norway, Great Britain, the Netherlands, Italy, Australia, and Canada and find that good communication with both the industry and grid customers is crucial when grid tariffs are reformed.

Regulators should prepare for questions and criticism when grid tariffs are reformed. Criticism is more likely to arise when customers are presented with the first bill, rather than when the reform is adopted. In order to respond to criticism and questions, it is important to be able to document the purpose of the reform and to demonstrate that the distribution effects are reasonable. A few regulators have found that stepwise implementation may be beneficial in order to gain acceptance.

Many grid companies have implemented or are planning to implement capacity-based grid tariffs. THEMA has studied cases from Sweden, Norway, Denmark, Great Britain, Ireland, France, the USA and Canada.

Unfortunately, there are few studies of customers’ responses to price signals in Sweden. Existing analyses do however show that it is possible to reduce peak load. Some types of load can be reduced without substantial inconvenience, such as water heating, space heating and EV-charging. In order to achieve the greatest response, automation is crucial.

Grid customers are not only motivated by monetary savings. Studies show that behavioural measures such as information and guidance can also play a role. An example of this is to provide information about the customer’s load compared to others.

Download the report (in Swedish):

THEMA Rapport 2019-11 >> Nättariffer för ett effektivt utnyttjande avelnätet 

portrettbilde, forfatter

Berit Tennbakk
Partner, PhD
berit.tennbakk@thema.no
+47 928 68 117