The impact of distribution grid tariffs on the level playing field in the internal european electricity market

In most countries in the EU, regulators are currently revisiting their distribution grid tariffs because the assumption that customers are passive and price inelastic may not hold anymore. Due to the decreasing costs of photovoltaics (PV) and energy storage systems (ESS), a growing share of residential consumers may own small scale PV and/or ESS in the future. Distribution tariffs designed in the past, when all consumers were passive, are often not suited to allocate network costs between heterogeneous consumers. A volumetric distribution tariff structure with net-metering, currently in place in, e.g., Belgium, causes significant welfare transfers between consumers and potentially reduces the revenue of the distribution system operator (DSO) (Schittekatte et al., 2017). To adress these challenges, researchers and regulators have proposed other distribution tariff designs with different combinations and implementations of fixed charges, volumetric charges and peak demand-based charges (Borenstein, 2016; Hledik & Greenstein, 2016). At the same time, the European Commission proposes to harmonize distribution grid tariffs (European Commission, 2016). Production of electricity is decentralizing and unharmonized distribution tariffs can distort the level playing field of the internal electricity market in Europe. Many stakeholders have however argued that distribution grid tariff (design) should remain a national prerogative (CEDEC, 2017; CEER, 2017).