New political agreement lays the foundation for electrification of our society
The Danish government and a broad majority of the Danish Parliament have concluded an agreement to create an electricity infrastructure that will meet future requirements and support the green transition through electrification of the Danish society. In this newsletter, we look at the key elements of the agreement.
For Denmark to meet its climate goals of a 70% reduction in greenhouse gas emissions by 2030 and a net-zero emission economy by 2050, greater electrification of the Danish society will be necessary. Also, the current transition to solar and wind energy will require a system that allows long-distance transmission of electricity.
A new political agreement concluded on 4 June 2021 will contribute to future investments in the electricity infrastructure. The parties behind the agreement have undertaken to vote for the implementing bills. The new rules are expected to come into force in 2024.
The key elements of the agreement are:
- a distribution network designed to meet future requirements
- a solid and responsible framework for distribution system operators ("DSOs") (stricter requirements for separation)
- a supply quality which is appropriate from a socio-economic perspective
- public access to DSOs' data
- guidance to and involvement of small DSOs
- an annual assessment of the financial consequences of the Danish Utility Regulator’s supervision for tariff levels and the beneficial effects for consumers.
Distribution network designed for the future
The agreement paves the way for new regulation that will provide a technologically neutral framework for DSOs and ensure a cost-efficient electrification process. This is intended (i) to prevent unnecessary increases in the costs of transporting electricity through the grid and guarantee reasonable prices for consumers, and (ii) to ensure that the grid is capable of exploiting the economies of scale that are likely to result from distribution of more electricity. Other things being equal, the increasing electricity consumption is expected to lead to a lower unit price per kWh and lower tariffs. It is further proposed in the agreement to adjust the existing revenue caps.
| Introduction of a new automatic electrification indicator (the indicator model to apply from 2024) |
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| Introduction of a new application-based extra payment (to apply from 2024) |
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Solid and responsible framework for DSOs (stricter requirements for separation)
The parties behind the agreement agree to take certain steps to further tighten the requirement for DSOs' separation from commercial activities.
To safeguard the independence of DSOs the following is i.a. proposed:
- stricter requirements for management independence
- a ban on DSOs’ direct or indirect participation or ownership interests in undertakings that carry on competitive electricity business
- a requirement for increased internal monitoring within DSOs
- specific data separation requirements
Furthermore, DSOs will to a higher extent be required to document their prices and terms in transactions with consolidated and related parties and to make their agreements with “related undertakings” public, thus increasing transparency.
In order to keep consumer prices as low as possible, the financial regulation will be adjusted so that, in future, the total revenue cap for merging DSOs will be limited to the companies’ aggregate pre-merger levels.
Public access to and digitisation of DSOs’ data
The parties behind the agreement agree to order DSOs to disclose i.a. their consumption and generation data. This will provide a more efficient and data-driven basis for market operators to develop new products and support a more flexible and intelligent consumption by households and companies. DSOs may have their revenue cap increased as a result of the initiative.
Furthermore, an analysis of the digitisation of the grid will be initiated and will likely be ready in 2022.
The costs of the new regulatory framework
The proposed measures to make the distribution grid ready for the future are expected to result in a minor increase of tariffs, but will also support investments in the distribution grid and thus facilitate the green transition and security of supply. It is expected that the proposals for a solid and responsible framework, socio-economic quality of supply and public access to data will lead to lower prices for consumers. The higher amount of electricity that will be distributed through the cables is likely to make the price per kWh fall.
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