The future of (individual) grid charges

Discover the future of grid charges: How can we distribute the costs of using the electricity grid more fairly and increase efficiency at the same time? Find out more about the debate surrounding flexible grid charges and the role of digitalisation in our latest blog article.

Prior to the liberalisation of the electricity market, the electricity grids were operated by state energy suppliers, who integrated the costs of grid operation into the electricity prices. Since liberalisation in the 1990s, grid fees have been charged by the grid operators as an additional item on electricity and gas bills. These costs include the operation, expansion and maintenance of the electricity grids as well as various levies and charges to promote renewable energies and other energy policy objectives. Since grid expansion has become an increasingly urgent item on the energy transition to-do list with the increasing expansion of renewables, its steadily rising cost estimates, as a major cost item on consumers' electricity bills, have moved to the top of the agenda for businesses and citizens.

This is leading to increasing discussions about the transparency and appropriateness of grid fees as well as how the costs can be distributed more fairly among consumers and how incentives can be created for more efficient utilisation of the electricity grids. This includes, for example, adjustments to the grid fee structure, the promotion of flexibility measures and the digitalisation of electricity grids to improve grid utilisation and efficiency.

Various instruments are currently being discussed, such as dynamic, flexible or variable grid fees. Dynamic grid charges: https://www.bundesnetzagentur.de/DE/Beschlusskammern/1_GZ/BK6-GZ/2022/BK6-22-300/Stellungsnahmen_zweite_Konsultation/LichtBlick%20SE%20und%20Neon%20Neue%20Energie%C3%B6konomik%20Memo.pdf?__blob=publicationFile&v=1

The fees to be paid are based on the grid load or seasonal peculiarities. Flexible grid fees could also be designed in such a way that consumers who can react flexibly to grid bottlenecks are rewarded with lower fees or even bonuses. This could incentivise consumers to shift loads or use battery energy storage systems, for example, in order to relieve the grid.  

The current grid fee regulation also already contains various special regulations for the calculation of grid fees that support certain consumer groups or promote specific behaviour.

One example of this is the agreement on individual grid fees, which grants a reduction in grid fees to large consumers with a guaranteed band load purchase. What may sound absurd in the context of the energy transition has its origins in the time before renewable energy generation. The centralised supply of electricity from large power plants was less dependent on the flexibility of consumers than on guaranteeing a secure minimum offtake for the power plants. With their base load requirements, large industrial consumers were a good partner for making electricity generation more economical for the operators and therefore more cost-effective for consumers, despite fluctuating energy demand. To ensure at the same time that not every industrial consumer builds its own line to the next large power plant, it was agreed to reduce the grid fees for the shared German electricity grid.

This ‘band load criterion’ is being questioned as part of the energy transition. The incentive to guarantee a continuous supply no longer fits in with the reality of German electricity generation, particularly the volatility of renewable generation. In addition, strict compliance with this criterion prevents flexibility, as any deviation could result in the loss of the individual grid fee and companies could face additional costs running into millions.

In order to avert this business-threatening scenario and still be able to utilise the benefits of industrial load flexibility to a certain extent for the benefit of grid security, the Federal Network Agency recently defined exceptions to the band load criterion. This means that companies will be allowed to reduce their load when electricity prices are particularly high. Put simply, these high-price phases result from a combination of a lack of renewable generation and high demand, such as often occurs in the mornings and evenings when photovoltaic generation is not fully available as the sun rises and sets and cannot yet or can no longer cover consumption. Reducing the load from industrial processes can have a price-reducing effect at these times because no expensive gas-fired power plants have to step in to flank the renewables in this phase of the so-called PV ramps, which is sensitive for the electricity grid. For industrial consumers, this has the pleasant side effect that they can in turn reduce their own electricity costs or sell the electricity they have already purchased over the long term into the market at a profit and thus further reduce the need for electricity to be generated in the short term with the help of this flexibility marketing.

However, such special regulations do not have a long-term perspective simply because of their relevance to state aid - according to the Federal Network Agency, which is endeavouring to find a successor regulation that complies with state aid. However, cancelling the concession on grid fees for industrial companies altogether would deprive them of their economic prospects – a classic dilemma.

Two possible solutions are outlined here, but these should be seen as suggestions rather than finalised concepts. Both are based on the retention of subsidised grid fees.

Variant 1 - The individual grid charge

Extension of the regulation on individual grid charges to include the following addition: ‘System-serving load flexibility has no influence on the type and amount of the grid charges to be paid.’ This statement was already included in the Green and White Paper on the electricity market 2.0.

The objection that the band load criterion has fallen out of time can be countered by the fact that a band load that can react flexibly to the generation situation of renewables when required has a clearly defined starting point from its nominal load and thus offers a secure flexibility option. This makes it comparable to a fully charged energy storage system or, depending on the options, even to a charged or discharged battery storage system.

Variant 2 - Flexibility

Flexibility as an authorisation criterion for special conditions – In order to be able to integrate the generation of renewables, the consumer system needs as much flexibility as possible, including intelligent flexibility marketing. Industrial processes have different load shifting options than, for example Battery Storage, especially if they can ‘hedge’ their consumption with a storable product. From the perspective of the energy system, it also makes no difference whether a battery storage system stores electricity or a company takes more, or whether the energy storage system feeds in or the company takes less. Flexible consumers could therefore also be offered an individual grid fee based on their assistance in integrating renewable electricity generation. After all, they ensure that money can be saved for grid expansion and costs for balancing energy and redispatch, which would otherwise be financed via the grid fees.

In addition, it is also imperative that such regulations be made permanent in order to create the planning security that has been lacking to date, which is what makes investments in additional flexibility possible in the first place.

As an aside, the concept of the ‘physical path’ on which the previous calculation of the individual grid charge is based also needs to be rethought. For example, the ‘new’ physical path could be calculated to the next grid bottleneck. In this case, the grid expansion would be integrated into the relief and not a blanket relief. It is also conceivable that grid nodes where the lines to wind and solar farms converge could be used for the calculation. Both variants could reduce redispatch and thus make the discussion about the need for electricity price zone separation in Germany superfluous. However, this topic requires separate consideration.

Overall, grid fees are facing an exciting future in which they will play a central role in the implementation of the energy transition, but not only grid fees.

As part of the transformation of our energy generation landscape, an entire system is being turned upside down and the new usually does not fit perfectly with the old. Especially in this phase of upheaval, investments need a secure (regulatory framework) and a reliable planning perspective. These must enable pragmatic and quickly realisable (bridging) solutions - rather ‘quick and dirty’ than according to the usual principle of ‘German thoroughness’. The goals must be defined, the paths to them flexible and open to ideas and suggestions - even at the risk that one path or another could end in a dead end. It is stagnation that threatens the transformation, not possible mistakes.

More articles

Zeitung für kommunale Wirtschaft

"Intraday market: flexibility marketer sees great opportunities for municipal utilities.
The company ESFORIN optimises electricity generation and consumption according to the price situation on intraday markets. While it initially focused on industrial customers, it now wants to increasingly target municipal utilities." Article worth reading in the ZfK

Decentralised energy bundle

Municipal utilities are real change makers in the energy transition. Stadtwerke Frankfurt (Oder) shows how it's done. Find out more in our latest podcast episode!

As specific as your need:
Our answer

We are specialised in developing solutions customised to your personal requirements. And you can also righty expect this based on the information you receive from us.

We are happy to advise you

Carina Buchmann | Public Relations
+49.201.22038-164
carina.buchmann@esforin.com

ESFORIN SE

+49.201.22038-100
info@esforin.com
Ruhrallee 201 | 45136 Essen

We are happy to advise you

Carina Buchmann | Public Relations
+49.201.22038-164
carina.buchmann@esforin.com

ESFORIN SE | +49.201.22038-100 | info@esforin.com | Ruhrallee 201 | 45136 Essen

As specific as your need: Our answer

We are specialised in developing solutions customised to your personal requirements. And you can also righty expect this based on the information you receive from us.