Energinet and Dansk Energi have submitted energy producer tariff models for consultation.
The discontinuation of the equalisation scheme (udligningsordningen) and the uncertainty of the tariffs payable by electricity producers as from 2023 have had an impact on the RE market. The market is currently slowing down, in particular affecting the development of solar cell projects.
Based on the method descriptions of the new producer tariffs submitted for consultation by Energinet and Dansk Energi, we now have a notion of the level of tariffs that will apply as from 2023. However, the producer tariffs stated in the method descriptions are not final as they are subject to the approval of the Danish Utility Regulator.
We have examined the elements constituting the producer tariffs proposed by Energinet and Dansk Energi. For more information see below.
Background and timing of new producer tariffs
Until 31 December 2021, the costs imposed on the electricity grid by RE installations as a result of connection, reinforcement and expansion of the collective grid as well as current operation and maintenance costs were balanced through the PSO system (known as the equalisation scheme (udligningsordning)). The PSO system was finally phased out by legislative amendments that took effect on 1 January 2022. This resulted in the discontinuation of the equalisation scheme.
The Danish Parliament has adopted a transitional arrangement funded by government grants for the 2022 transitional period; but from 2023 onwards the grid companies and Energinet must collect connection charges and feed-in tariffs to the electricity producers (producer tariffs). The arrangement is the result of the Climate Agreement of 22 June 2020 and the subsequently implemented legislative amendments that came into force on 1 January 2022.
A new producer tariff model cannot take effect in 2023 until the grid companies and Energinet have developed the models, which are subject to the Danish Utility Regulator's approval.
New producer tariff models submitted for consultation
Energinet has submitted its method description with regard to producer tariffs for consultation until 11 March 2022. Energinet will subsequently give notice of the new tariff model to the Danish Utility Regulator.
On 31 January 2022, Dansk Energi gave notice to the Danish Utility Regulator of the producer tariff model in the distribution grid (sector guidelines) and, on the same occasion, gave notice of adjusted standard connection agreements and applicable provisions.
The Danish Utility Regulator has submitted Dansk Energi's producer tariff model for consultation until 11 March 2022 and the adjusted producer standard connection agreements have been submitted for consultation until 14 March 2022.
Application of the method descriptions is subject to approval by the Danish Utility Regulator.
Energinet's proposed producer tariff model
Energinet's model encompasses a new connection charge and a change to the current tariffing (feed-in tariffs). The model comprises the following three cost elements:
- Station charge
- Connection charge
- Feed-in tariff
Station charges are to cover the average connection costs of Energinet stations. Station charges are not payable for installations connected at the distribution level.
Connection charges are payable at a standard rate per MW according to the connection's capacity. This type of charge will also apply to installations connected to the distribution grid (subject to a lower threshold of 50 kW). The charge will depend on the geographical categorisation of the area as either an area producing surplus energy or an area predominantly consuming energy.
The feed-in volume of and connection charges payable by the individual installations must be fixed at the time of the signing of the grid connection agreement. As for installations connected to the distribution grid, the feed-in volume agreed with the grid company will form the basis. Installations connected to the distribution grid must pay a transformer charge differentiated geographically depending on whether production is the driver of the need for additional transformer capacity.
The connection charge will be payable once a temporary operation permit has been granted, that is, when the installation commences supplying energy to the collective grid.
Energinet's connection charge model will not apply to RE installations established in connection with government tenders for which the grid connection terms have been laid down in tender documents.
Energinet proposes that feed-in tariffs remain at their current level (DKK 0.003/kWh) in areas dominated by energy consumption, whereas the feed-in tariffs be raised to DKK 0.009/kWh in areas producing surplus energy.
According to Energinet's description of tariff methods (figure p. 30), East Jutland, Funen, North Zealand and Bornholm are classified as areas predominantly consuming energy, whereas the remaining parts of Denmark are classified as areas predominantly producing energy.
Energinet has published three preliminary projections of the approaching producer tariffs here.
Dansk Energi's proposed producer tariff model
The adjusted producer standard connection agreements, of which Dansk Energi has given notice to the Danish Utility Regulator, include, among other things, a new addendum to clause 11 of the standard grid connection agreement of 24 March 2021. The addendum is to apply to the grid connection agreements under which a production station's grid connection is implemented on 1 January 2023 or later. Furthermore, the new addendum to clause 11 provides that installation owners are under an obligation to pay connection charges and place security for costs that may be incurred for the installation's grid connection.
The standard connection charges payable to the grid companies for installations are based on the individual installation's feed-in volume. Standard connection charges payable for very small installations under 50 kW are subject to a cut-off threshold.
Installations are allocated a specific customer category according to the station's connection point. Seven customer categories have been defined for energy production in the distribution grid.
Feed-in tariffs are differentiated geographically. The geographical differentiation comprises three different geo zones:
- Red geo zone (areas in Denmark predominantly producing energy)
- Yellow geo zone (‘mixed’ areas in Denmark producing and consuming energy in equal proportion)
- Green geo zone (areas in Denmark predominantly consuming energy)
Dansk Energi's geo zone classification is found in Appendix 1, Detailed description of methods – Standard connection charges, para 1.2.5.
It is expected that the individual grid companies’ geo zone classification will be updated in the course of 2022, and the updated geo zone classification will apply to any grid connection agreements concluded as from 2023.
As for installations subject to grid connection agreements concluded as from 1 January 2022, it is proposed that the connection charge be fixed according to the geo zone classification included in Dansk Energi's notice to the Danish Utility Regulator. As for installations subject to grid connection agreements concluded prior to 1 January 2022 but connected to the grid in 2023 or later, it is proposed that the grid companies will assess the geo zone status at the time of forwarding clause 11 of the grid connection agreement, and that connection charges will be fixed accordingly.
Dansk Energi's projections of standard connection charges payable by producers are listed in Appendix 1, Detailed description of methods – Standard connection charges, para 1.1.8.
As is the case with consumption tariffs, the grid companies' feed-in tariffs are projected for each grid area. And, as with standard connection charges, the payment of feed-in tariffs will depend on the customer category to which an installation belongs. The tariffs payable will vary from one grid area to the next depending on the area's geo zone status (as to whether production or consumption predominates the area, or the area constitutes a mix of both alternatives) as well as on the cost factors in the individual grid areas.
Any installation supplying energy to the distribution grid will be charged a feed-in tariff. This also applies to existing stations that supply energy to the grid. However, stations subject to the obligation to take delivery (see s. 52(2) of the Danish Renewable Energy Act) will be exempted from feed-in tariffs.
Extension of the government-funded transitional arrangement on the political agenda
A majority of the parliamentary parties in Denmark have requested that the Minister for Climate, Energy and Utilities look into the possibility of extending the government-funded transitional arrangement within the scope of the EU State aid rules. The assessment is to be submitted to the parties behind the Climate Agreement on energy and industry from 2020 and discussed in connection with the government's climate draft proposal for a green energy and energy supply sector scheduled for the spring of 2022. We will follow developments closely.
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