DSO tariffs in IcelandSeminar on DSO tariffs in the Nordic countries

Dr. Silja Rán SigurðardóttirProject Manager - Electricity Regulation & Economy

3. November 2016

Icelandic DSO‘s

• There are six DSO‘s in Iceland• They operate subject to the Electricity Act No 65/2003

that implements directives 96/92 and 2003/54• The third Energy Package has not yet been implemented

into national law

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The Icelandic Electricity Market

Prior to 2003• One primary producer of electricity, Landsvirkjun, who also owned

and operated most of the transmission• A few smaller utilities, operating distribution systems for electricity,

hot and cold water, engaged in small scale electricity production and the sale of electricity to end users

2016• One TSO: Landsnet• Three main producers of electricity Landsvirkjun, Orka Náttúrunnar

and HS Orka• Six DSOs• Six entities engaged in the sale of electricity to end users

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Icelandic DSO‘s

• Icelandic DSO’s operate under revenue cap regulation, period of 5 years

• DSO tariffs need to be set at such a level that the level of total revenues does not exceedthe yearly allowed revenue derived from the cap

• Allowed revenue each year consist of allowed opex, allowed capex and depreciation that same year.

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Change in tariffs

• All change in tariff should be reported to the NRA with 6 weeks notice

• The NRA looks into the surplus and deficit boundaries from last allowed revenue settlement and may ask for further argument for the change.

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Surplus and deficit

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Allowed Revenue

Revenue Allowed Revenue

Revenue

Surplus year 1

S1

Surplus year 2

S2

Year 1 Year 2

The accumulated surpluses or deficits are not allowed to exceed 10% percentage of the Allowed Revenue

�� + ��

������ ��������≤ ��%

Allowed Revenue

Revenue

Allowed Revenue Revenue

Deficit year 1 Deficit year 2

-D2

Year 1 Year 2

−�� − ��

������ ��������≥ −��%

-D1

Urban and rural area tariffs

• Two DSO‘s in Iceland have both rural and urban area tariffs

• And thus rural and urban revenue caps respectively

• Rural tariffs are subsidized

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Subsidy and Equalisation Fee

• According to a legislation from 2015, rural tariffs are subsidized by charging the DSO‘s an extra 0,23 Eurocent/kwh equalisation fee.

• The rural prices are then adjusted to the highest urben prices for that particular year.

• Before 2015 rural prices were subsidized but according to a fixed amount provided by the government.

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9

27% 27%34% 37%

26%36% 36% 37%

50% 50%44% 42%

52%42% 42% 42%

19% 19% 19% 19% 19% 19% 19% 19%

3%3%

3% 2% 3%3%

3% 2%

-12% -10%-20%

0%

20%

40%

60%

80%

100%

120%

DSO A DSO B DSO C RURAL DSO 1 DSO D DSO E DSO F RURAL DSO 2

Fixed charge Energy charge VAT Equalization Fee Subsidy

Icelandic DSO‘s: Usage of 4500 kWh a year. Proportional tariff breakdown compared

Icelandic DSO‘s: Usage of 4500 kWh yearly usage - €/year

10

€ 339€ 325

€ 423

€ 621

€ 376€ 402 € 396

€ 611

0

100

200

300

400

500

600

700

DSO A DSO B DSO C RURALDSO 1

DSO D DSO E DSO F RURALDSO 2

€/ye

arAverage urban = € 377Average rural = € 615

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Icelandic DSO‘s: Usage of 4500 kWh yearly usage. Tariff breakdown €/year

€ 92 € 88€ 144

€ 231

€ 96€ 145 € 143

€ 226

€ 171 € 163

€ 187

€ 259

€ 197€ 168 € 165

€ 256

€ 66 € 63

€ 82

€ 120

€ 73€ 78 € 77

€ 118

-€ 74 -€ 62

-200

-100

0

100

200

300

400

500

600

700

DSO A DSO B DSO C RURALDSO 1

DSO D DSO E DSO F RURALDSO 2

€/ye

ar

Fixed charge Energy charge VAT Equalization fee Subsidy DSO A

Increase/decrease in yearly payment (real value) 2005 til 2016, 4500 kwh usage

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-2,5%

-8,2%

29,1%30,5%

-3,3%

14,5%

3,8%

31,3%

13,0%

5,1%

30,9%

-10,0%

-5,0%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

DSO A DSO B DSO C RURALDSO 1

DSO D DSO E DSO F RURALDSO 2

Average Averageurban

Averagerural

Development of DSO cost for a customer in terms of € cent/kwh with 4500 kwh yearly usage (real values)

13

5

6

7

8

9

10

11

12

13

14

jan-

05

jul-0

5

jan-

06

jul-0

6

jan-

07

jul-0

7

jan-

08

jul-0

8

jan-

09

jul-0

9

jan-

10

jul-1

0

jan-

11

jul-1

1

jan-

12

jul-1

2

jan-

13

jul-1

3

jan-

14

jul-1

4

jan-

15

jul-1

5

jan-

16

jul-1

6

€/kw

h

Average urban (€ cent/kwh) Average rural (€ cent/kwh)

Change in Fixed Price versue Energy Price?

Energy Price for undir 7300 kwh/year (35 til 80A) € cent/kwh

Fixed Price for undir 7300 kwh/year (35 til 80A) €/year

14

3,00

4,00

5,00

6,00

7,00

jan-

05

okt-

05

jul-0

6

apr-

07

jan-

08

okt-

08

jul-0

9

apr-

10

jan-

11

okt-

11

jul-1

2

apr-

13

jan-

14

okt-

14

jul-1

5

apr-

16

€ce

nt/k

wh

DSO Energy Price average all

DSO Energy Price average urban

DSO Energy Price average rural

60

80

100

120

140

160

180

200

220

240

260

jan-

05se

p-05

maj

-06

jan-

07se

p-07

maj

-08

jan-

09se

p-09

maj

-10

jan-

11se

p-11

maj

-12

jan-

13se

p-13

maj

-14

jan-

15se

p-15

maj

-16

€/ye

ar

DSO Fixed Price average all

DSO Fixed Price average urban

DSO Fixed Price average rural

110% increase in rural area31% increase in urban area

10% decrease in rural area1% decrese in urban area

Energy Efficiency Directive

• Iceland has not implemented the Energy Efficiency Directive.

• At the moment the government does not have any changes on the agenda as regards tariff design for the Icelandic DSOs.

• The implementation of the directive may, however, have some impact on the legal framework that the DSOs currently work under in the future and indirectly effect tariff design in Iceland.

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