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REGULATION UPDATE | New Capacity Based Distribution Tariffs in Flanders: Clear Outline But Impact On The Customer Still Uncertain

Gunter Walmagh2 Written by

Gunter Walmagh, Business Development Director, ENSEK Benelux

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History of the new tariff methodology

On February 8th 2021 a new tariff methodology has been published by the Flemish regulator (VREG).

This new methodology is applicable as of March 1st. Unless there are any delays or postponements*, new capacity distribution tariffs will be introduced in Flanders (Belgium) as of 01/01/2022.

Initially the tariff methodology for the regulation period 2021-2024 had been decided by the VREG on August 13th 2020 and modified for the first time on December 11th 2020.

On February 5th VREG decided to change the DSO** tariff methodology again. This latest change was following a decision made by the Constitutional Court, that revoked an earlier decision of the Flemish Government on the metering regime. This applied to customers that installed solar panels before 31/12/2020 and that would be equipped with a digital meter (and thus potentially loose the advantage of net metering).

This decision changes the structure of the distribution tariffs for high voltage (HV) and low voltage (LV) customers. In particular for LV customers, the distribution tariffs will change from 100% volume based (kWh) to mainly capacity based (kW).

Why are Capacity Tariffs introduced?

Capacity Tariffs are introduced to:

  • Ensure that distribution costs are fairly and correctly reflected to the right customer categories (read: ensure that “injectors” pay a fair share of the grid cost they cause)
  • Create an incentive for more rational use of the grid (promote self-consumption over injection; spread energy consumption over time*** ).
  • Align with other EU countries (sic) where a significant part of the distribution charge is already capacity based.

What will the Capacity Based Distribution Tariffs look like?

The exact values of the new capacity tariffs have not yet been published.

Nevertheless the structure is known.

Tariffs will be proposed for different customer groups. These customer groups differ based on the voltage level, the type of connection and the type of meter.

For each of these groups the tariff will consist of different components that reflect different cost categories, see below for a breakdown:

  • Costs for the use of the distribution grid:
    - Pass through of transmission costs
    - Distribution costs related to offtake of electricity
    - Distribution costs related to the injection of electricity
  • Costs related to the service of “reactive energy”:
    - Provided by the DSO
    - Provided by the TSO to the DSO
  • Data Management fees
    - Cost related to Public Service Obligations
    -
    Different additions and transmission costs not related to the use of the grid.

Within the customer groups, all allocated costs will be charged to the customer based on tariff calculation units (KW, KWh, KVA, KVArh), resulting in the following tariff structures:

For HV and MV (medium voltage) Customers

For LV Customers

What is the impact of the new tariff structure? - Mitigation measures

Precise impact calculations for the customers are still impossible to know as of yet. The exact values for the different customer groups (€/kW) for the measured peaks are still to be calculated and published.

Impact will however be mitigated/limited:

  1. For HV customers, the measured peak will only count for 50% of the capacity charge calculation
  1. For LV customers, the measured peak is calculated as a rolling average of the measured peaks of the last 12 months, thus flattening occasional peaks
  1. For both, HV and LV maximum tariffs are foreseen for the tariff period 2022-2024. These are equal to the average annual tariff/kWh for offtake, for a given access point during 2020 (excl. excess indemnity, reactive power and data fee) that corresponds to the 95 percentile value for the concerned customer group and augmented by 30%

The regulator has published some preliminary simulations of the impact of the introduction of these new capacity tariffs. Typically, the impact will be most felt by customers with high peaks and low consumption such as owners of a second residence.

According to the VREG, for 60% of residential customers, distribution fees will either decrease or increase by no more than 10%.

For more than70% of SoHo ( Small Office Home Office) and SME (small medium enterprise) customers, distribution fees will either decrease or increase by no more than 10%.

For HT customers this percentage will be slightly above 50%, meaning that almost 50% of customers will see their distribution fees increase by more than 10%

How will Capacity Tariffs be applied to customers with a classical meter?

Capacity tariffs can only be applied to customers with a digital meter. The roll out for Digital meters in Flanders, however, is not yet complete. This roll out will be 80% completed by 2024 and full roll out is only forecasted by 2029.

Therefore, customers with a classic meter will also pay a minimum “lump sum” capacity charge that is based on an assumed capacity of 2,5 kW.

Will Capacity Tariffs be time dependent?

Unlike the actual volume-based distribution tariffs, for the regulation period 2022-2024, the capacity tariffs will not be time dependent. However, VREG (Flemish regulator) asked the DSO to examine the need for time dependent tariffs and to issue a report on this by the end of 2023.

Will Injection Tariffs change?

Theoretically, a capacity-based injection tariff could be a fair way to allocate the costs caused by injection to the concerned customers. It is however still unclear how such capacity-based injection tariffs would contribute to a more rational use of energy. Hence, for the tariff period 2022-2024 injection tariffs will remain volume based (c€/kWh).

Meanwhile the VREG has asked the DSO to examine the need for capacity-based injection tariffs by end 2023.

Conclusion

So far, only the principles and structure of the capacity tariffs for the period 2022-2024 are known. Lots of measures have been taken to mitigate impact of this on the customer’s bill.

Hence, major shifts in consumption behaviour are unlikely.

These behavioural changes, needed to avoid major investments in the grid capacity, will rather be induced by passing through the impact on the customer’s bill of the measured peak in the 2025-2028 tariff period.

Footnote

* De Tijd - 12/03/2022 – The Flemish Energy Minister (Zuhal Demir) and Fluvius are in favour of postponing the introduction of the capacity tariffs. Fluvius asked to postpone this introduction by 6 months.

** DSO = Distribution system Operator , TSO = Transport System Operator

*** In Flanders by 2030, an estimated additional 700K Electric Vehicles, 145 K Heat Pumps and 200K Photovoltaic installations will likely cause an increase in the synchronous peak load form 5,8 to >9 GW. Therefore 800 – 1150 Mio€ investments in the grid will be necessary during the same timeframe.