Key elements for fairer distribution of network costs for renewable energy expansion

Key elements for fairer distribution of network costs for renewable energy expansion

The Bundesnetzagenturhas today published a key elements paper on distributing the additional costs incurred in electricity networks with a particularly high level of renewable generation.

"We want fair network tariffs for people and businesses in regions with strong growth in renewables. The energy transition is a collaborative task. Everyone benefits from investments in networks. We want the costs to be distributed more fairly," said Klaus Müller, BundesnetzagenturPresident. "There is broad agreement that something needs to be done about the network tariffs. Regions that generate considerably more renewable electricity than they consume are faced with significant costs for restructuring the networks. Yet the electricity they produce is used to supply not only the regions themselves but consumers throughout Germany. The network tariffs in these regions need to be lowered. This will, however, mean a manageable increase in costs for all electricity consumers in Germany. Now we will discuss our proposal with political representatives, the federal states, industry and civil society."

Basics of the model

The Bundesnetzagenturwould like to reduce the burden on network operators faced with particularly high costs from the expansion in renewable energy and distribute the costs more fairly among all electricity consumers.

It is proposing a multi-step model. The first step would be to determine whether a network operator has a particularly high burden of costs from renewable energy expansion. To this end, the Bundesnetzagentur is proposing an indicator based on the amount of renewable generation capacity connected to an operator's network. If the indicator for a network operator is higher than a threshold to be set, the second step would be to determine the additional costs, which would then be distributed among consumers across Germany. The network tariffs in the regions concerned would decrease.

At present, 17 network operators under the Bundesnetzagentur'sresponsibility would be entitled to pass on their additional costs to all electricity consumers. These operators supply electricity to around 10.5mn network users. These users' network tariffs would decrease by up to 25% and would then be mostly below and in only a few cases above the national average. The average household (3,500 kilowatt hours per year) in these regions would save up to €120 a year.

The total reduction in the cost burden in 2023 would be around €608mn (gross). The biggest reductions would be for network operators in Brandenburg(€217mn), Schleswig-Holstein(€184mn) and Saxony-Anhalt(€88mn). There would also be significant reductions for operators in Mecklenburg-Western Pomerania (€44mn), Bavaria (€40mn) and Lower Saxony (€26mn) and smaller reductions for some network operators in Baden-Württemberg, Hessen, Saarlandand Rhineland-Palatinate. (The reductions were allocated to the federal states according to where the network operators are registered.) Currently, no costs from the other federal states would be redistributed.

The third step would be to compensate the network operators for their additional costs. All Germany's electricity consumers would jointly finance the costs, which would be distributed equally across the country.

The Bundesnetzagenturspecifically intends to use the surcharge mechanism under section 19 of the Electricity Network Tariffs Ordinance (StromNEV). The surcharge is an established mechanism for balancing out certain network costs among all network users. The section 19 surcharge makes up part of the electricity price. The aim of the surcharge is to offset any revenue lost by network operators because of certain consumers paying reduced network tariffs.

While there would be a significant reduction in the cost burden for the regions concerned, the increase in costs for all electricity consumers would be manageable. The section 19 surcharge would rise from 0.4 cents per kilowatt hour (ct/kWh) (for 2024) to 0.64 ct/kWh. The average household (3,500 kWh/a) would pay €8.40 more per year.

Background

Many electricity distribution networks are being expanded and digitalised to accommodate the feed-in and transport of regionally produced renewable energy. This causes additional costs. The level of these costs varies across the country because wind energy is mostly produced in the north and large-scale solar farms are mainly built in rural regions.

All network costs are refinanced through the network tariffs by the electricity customers. Customers in those regions that would benefit from a reduction in the cost burden currently bear all the costs for integrating renewable energy. At present, the costs are not distributed equally among all network users. In large parts of north and north-east Germany, the network tariffs - as part of the electricity costs - are noticeably higher than in other regions of the country. In some network areas, the network tariffs are up to around 15 ct/kWh, while in others, they are less than 5 ct/kWh. In some federal states, such as Bavaria and Baden-Württemberg, there are also large differences in the network tariffs payable within the state.

Over the years, the situation has developed to an extent that is no longer acceptable, and it would become more acute with further growth in renewable energy. The amendments to energy industry law in November 2023 gave the Bundesnetzagenturresponsibility for taking such decisions on network costs.

Electricity is supplied through various network levels - from the transmission networks at extra-high voltage level to the consumers connected at low-voltage level. All the network levels below extra-high voltage are referred to as distribution networks. In Germany, there are about 870 companies that operate electricity distribution networks.

Consultation

The Bundesnetzagenturplans to issue a determination on the appropriate distribution of the additional costs in the third quarter of 2024. The determination would enter into force at the earliest on 1 January 2025.

The key elements paper has been published at www.bundesnetzagentur.de/verteilung-netzkosten (in German). Comments on the paper can be submitted between now and 31 January 2024. The Bundesnetzagenturwill evaluate the responses and then open a second consultation on its draft determination.

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