Network tariffs should be made more cost-reflective and ensure that customers only pay for the electricity they use. These are among some of the recommendations EURELECTRIC makes in a new report on network tariff structures in Europe.

The report finds that recovering network costs today heavily depends on how much electricity is sold – in spite of the fact that direct network costs are largely independent of the actual energy delivered. About 50-70% of distribution system operators’ (DSO) allowed revenue is usually recovered using such volumetric network tariffs.

In last week’s European Council conclusions, EU leaders called for a boost in energy efficiency and a completed single energy market with more domestically-produced renewables and new and intelligent energy infrastructure. Implementing this vision will require DSOs to undertake heavy new investments. To this end, network regulation must change to induce cost-effective investments, including in smart grids, and ensure adequate DSO remuneration.

To ensure that DSOs can recover such investment costs, the EURELECTRIC report recommends that:

• Cost-reflective network tariff structures should be developed that incentivise demand response and energy-efficient behaviour while providing a stable framework for both customers’ bills and DSO revenues. Such tariff structures would be in line with the Energy Efficiency Directive (2012/27/EU), which requires the removal of network tariffs that would impede energy efficiency and/or demand response.

Customers only pay for what they use: cross-subsidies between different categories of users should be minimised.

More capacity-based network tariffs (decoupling from the volumes of sold energy) such as two-part network tariffs with a capacity and an energy component, or volumetric time-of-use network tariffs with different prices for peak and off-peak energy.

Smart meters will open the door to more cost-reflective tariff structures and demand response. Nevertheless, different customers’ potential and the outcome of the national cost-benefit analysis for the roll-out of smart meters should be taken into consideration when designing new tariff structures.