October 27, 2021

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Electricity, electricity prices |  Unknown power effect: Double bang for the buck for expensive power

Electricity, electricity prices | Unknown power effect: Double bang for the buck for expensive power

Electricity consumers are now affected from all sides.

Electricity prices have risen in recent months, and prices remain high throughout the winter.

Among other things, Norway will be very closely linked with the United Kingdom in the short term, where they will occasionally charge exorbitantly high electricity prices up to NOK 18 per kilowatt – before taxes.

Prices rose 18,000 percent, and then electricity disappeared. Will this happen in Norway?

Electricity charges are divided into three

One small consolation in times of high electricity prices is that electricity bills actually have three separate things:

  • Actual electricity price – Including “electrical certificates”. These prices have just risen sharply.
  • Fee – Electricity tax and VAT / VAT. (Electricity tax only 20.86 ATre / kWh including VAT)
  • Grid rental – Bring electricity to your home

And even though VAT increases when the price of electricity increases, both the electricity tax and the phase rent are determined. This means that even if the electricity price doubles, the bill you pay will not double.

Phase rent increases due to higher electricity prices

So, to the great surprise of some customers, the network company Norgesnet, which runs electricity to nearly 100,000 homes south of Oslo, recently sent a message to its customers:

This year led to higher costs for companies to build higher electricity prices. Based on this, the phase rent should be increased slightly from 1 October 2021.

Norznet

Changed phase rental is not an unusual phenomenon, but rationality has made more people react:

The grid company must carry the electricity to the subscriber regardless of the price charged by the electricity supplier. How much the price of electricity has increased should not be the criterion for increasing the phase rent, annoying reader writes to Netvision.

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Network companies are monopolies that are strictly regulated by the NVE Regulatory Authority (RME). NVE determines how much revenue each company is allowed to earn in terms of costs. If companies earn more than the prescribed (extra income), they should reduce prices – at the same time they are allowed to increase prices if they have low income (low income).

The skepticism coming from customers was somewhat of historical significance when the company first adopted NVE in December 2019. Norjesnet banned from raising its price, After Norgesnet paid for itself for many years. They had to repay this to their customers at a lower price.

Is it more expensive to carry expensive electricity?

The big question is whether higher electricity prices are an argument for higher phase rentals.

In principle, the price of an item should not affect transportation costs, and whether there is a higher or lower price for electricity does not matter to the electricity grid. No further maintenance or increased investment is required if electricity costs 1 or 50 kroner per kWh.

Nevertheless, increased electricity prices are leading to increased costs for grid companies. The reason is a little known effect: grid companies lose a large portion of the electricity they carry. They have to pay the market price for everything they lose.

Norwegian network companies In 2019 the power phase lost about 7 TWh. This is more than all wind power generation in Norway in the same year.

As part of network operation, network companies incur costs for transfer losses on the network (network losses). Due to the resistance in the electrical connections, some electricity is lost in the form of heat between where the electricity is generated and where the customer uses it. Grid companies have to pay for the lost electricity. This means that the costs of grid companies for grid losses, among other things, will vary with the price of electricity, General Manager Mona Askman tells Norwisnet at Netvision.

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– Norway power grid loss can be up to 10 percent. So far this year, Norjesnet has suffered a net loss of 4.8 percent. But Norgesnet also has the cost of supplying electricity to our offer area, and there are definitely losses in this network (regional network and central network). The cost of having customers pay back, he says.

NVE: Increasing phase rent is not unnatural

NVE tells Netvision that the link between electricity prices and grid rentals is very clear:

– As the price of electricity increases, the costs for all phase companies increase. This is because the price they have to pay to buy electricity to compensate for the power loss in the electrical connections is increasing, and these costs are included in the calculation based on the phase rent. Network loss occurs in the Norwegian region of overseas transfer connections. When electricity prices rise significantly, it would not be unnatural for some grid companies to choose to increase grid rentals to avoid lower revenues, he writes in an email to NVE Netvision.

NVE will not comment specifically on the price changes for Norjesnet, as the company’s price changes are already under scrutiny following the end of 2019:

– They later reduced the build rent several times, but in some cases increased it. We are currently investigating whether their increase in grid rent contradicts our decision, NVE writes in an email.

The giant phase is to reduce rental prices in 2020

The impact of electricity prices on grid rentals is not the only one: last year, lower electricity prices led to NVE Revenue for Norwegian grid companies was reduced by NOK 2.9 billionThis refers to lower phase rents for customers.

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Elvia – Norway’s largest grid company – formerly Hofsland and Ediswa – says Netvision has no plans to adjust grid rentals based on higher electricity prices. They make sure they get higher costs, but over time they see growth.

Elvia is right in saying that grid companies will cover their costs over time. Estimating grid rentals is not easy, so the authorities in the RME reach exactly the level that allows grid companies to collect the so-called allowable income. If we get more income, we will get extra income and if we get less, we will get less income. Last year, electricity prices were much lower, giving grid companies lower costs for grid losses. Due to lower costs, Norjesnet cut grid rents, he says.