Upcoming Changes in Distribution Network Tariffs – Potential Harmonization Needs For Demand Charges

Abstract

This paper focuses on pricing of electricity distribution and the upcoming tariff reform. Various countries worldwide are actively researching ways to enhance the cost-reflectivity of small customer (i.e. maximum fuse size of 3x63A) tariffs as smart meter rollouts are being implemented. Smart metering enables gathering of detailed consumption data, which provides distribution system operators (DSO) with the information required to develop their pricing. Various novel pricing schemes have been explored in recent years and tariffs that include demand charges might respond well to the upcoming challenges of changing operational environment. However, in countries where DSOs can form their tariffs independently, there might be a great number of different pricing schemes. To exemplify this, we present the case of Finland, where there are various options for billing larger customers for demand. We discuss also the present Finnish legislation, which states that the distribution fees of the customers cannot be raised over 15% during a 12-month period. The national regulator has to oversee that this is complied with and if there is no level of harmonization in the industry regarding future pricing for tariffs of small customers, this task might become complex if there is a great number of different pricing schemes.