Capacity tariffs in Flanders and its impact on PV and storage
The presence of distributed generation, the advent of large electricity consumers, such as electric vehicles and heat pumps, and the rise of demand side management raises large challenges to manage the power flows in the distribution grid.
Addressing this challenge, distribution grid operators are arguing to shift the basis for grid tariffs from energy consumption to the electric connection capacity (kW) of consumers, hence discouraging consumers to exchange large powers with the grid. With smart meters being deployed in the coming years, capacity tariffs could also take into account e.g. maximum daily or monthly powers. Moreover, such a measure could also correct for the unfair situation where the costs of creating a green energy system are not carried by society as a whole, but mainly by those not investing or not able to invest in residential PV system (due to net metering). A final decision on the matter is however not expected before 2018.
In this context, 3E measured the impact of monthly capacity fees on the Flemish energy landscape. It was observed that as more costs are allocated to the capacity component, the use case for PV disappears and a use case for battery energy storage reveals itself:
- Stopping net metering with smart meters would instantly make all residential PV investments unprofitable
- As from a 25% tariff allocation to capacity, PV investments in tertiary businesses would end, despite the current subsidies in place.
- As from a 75% tariff allocation to capacity, battery energy storage become competitive for residential usage. Taking into account the 2020 battery price estimations, storage is worth the investment as from 50% capacity allocation.
The outcomes are strongly depending on the precise implementation of a capacity tariff. Nonetheless, it is clear that to allow a correct recovery of distribution costs and to avoid subsidies for PV or energy storage hidden in a suboptimal tariff structure, grid operators will need to pay close attention to the degree at which capacity tariffs are to be implemented. At the same time, supporting measures for residential PV will be required if the transition towards more distributed generation is to be continued.