EU Involvement in Electricity and Natural Gas Transmission Grid Tarification

Abstract

Current EU involvement in the regulation of TSO revenues and transmission grid tarification is rather limited and the existing heterogeneity among national regulatory practices and transmission tariff structures might be an obstacle for functioning competition and adequate investments in the grids. However, we see neither the need nor solid justification for an EU-wide harmonization of the regulation of TSO revenues. ACER should take the responsibility for benchmarking national regulatory practices. Transparency standards should be extended. Innovative solutions to trigger investments (e.g. competitive tendering or a European tariff component) need to be considered. The EU shall call for the removal of legal barriers that might impede grid investments; it is notably necessary that third parties can invest where incumbent TSOs do not show interest to realize identified priority projects. To increase transparency, the cost components included in electricity transmission tariffs should be harmonized; they should only include costs related to transmission grid infrastructure. Locational signals providing reliable ex-ante signals should be introduced. To avoid a distortion in competition, the EU should fix an average share of the G/L-components; thus, introduce a minimum G-component. The behavior of grid users in the competitive sector must not be distorted, i.e. transmission tariffs covering the long-term cost of infrastructure should not be calculated based on energy transported (i.e. in €/MWh). In the European natural gas sector, there are more than 30 entry-exit zones with mainly administratively determined borders. The EU should set principles for determining the ideal size of entry-exit zones, but let concerned NRAs and TSOs agree on the result. Once market areas are merged, there are good economic reasons to implement a system of common tarification. The role for the EU here should be limited to support sound agreements between the respective stakeholders. We recommend some harmonization in natural gas transmission tarification to ensure that the breakdown of costs among grid users and among entry- and exit points respects the principle of cost-reflectiveness as much as possible. Adequate discounts on short-haul transports should be encouraged. Asymmetric re-allocation of costs, such that ‘captive’ domestic consumers have to bear disproportionately high costs, shall be prohibited.