Share of network services in the electricity price is increasing and new pricing is necessary

According to Märt Masso, expert at the Foresight Centre, it is expected that the prices of network services and their share in the electricity price will rise, as the growth in distributed generation and microgeneration will increase the costs of developing and operating the distribution network. “Other countries are facing the same challenges today and the share of network-related services in electricity prices is on an upward trend in most European countries,” said Masso. “Currently, the share of network charges in the total price of electricity ranges from 9% to 51% in different countries, with 22% in Estonia, which is quite average.”

Mihkel Härm, Chairman of the Board of Elektrilevi, said that electricity producers already produce over 830 MW of electricity in the network today, which is more than Estonia’s electricity consumption in summer. “Since the number of active consumers is on the rise and with it society’s expectations for the quality of the network services, around 150 million euros per year must be invested into the development of electricity networks in the coming years” said Härm. “The question is not whether these investments are necessary or not, but whether the money should come from network charges or other sources, such as the state budget.”

At the Foresight Centre’s Energy Conference, it was highlighted that in the formation of network charges, conflicting goals must often be taken into consideration, and this requires a social contract.

“Ideally, network charges should be formed in a way that they cover the costs of the electricity network and support the efficiency of the power system as a whole, instead of supporting one segment of consumers or producers at the expense of others,” said Masso. “On the other hand, it may make sense to amplify price signals with the help of the charges, for example by charging more during peak hours, which would encourage users to consume and use the network less during periods with high prices.”

The Foresight Centre points out in its recent report ‘Active Consumers in the Future Energy System’ (in Estonian) that variable network charges can be utilised to signal consumers about the uneven costs associated with variations in network load and to motivate households to manage their consumption or schedule the use of energy storage devices.

Energy storage possibilities in households or in the network play an important role, allowing better utilisation of the network capacities, which in turn would lower the need for network development. “Active consumers can support the system by storing energy, and the electricity taken from the grid for storage could be exempt from network charges,” added Masso.

At the Foresight Centre’s Energy Conference, the expanding role of consumers in the energy system and how this can open up new business opportunities was discussed. Experts from various fields also talked about the dilemmas associated with covering the costs of necessary power grid developments and investments.