What exactly are grid fees?
Does electricity need a ticket to travel from the place it is being generated to the consumer? This statement, although it may sound odd, is not that far-fetched from reality. In the following section, we will explain to you why.
This is what it’s all about: paying for using the grid and therefore making sure that it can be maintained and expanded
If you want to board a train in the city you live in, you first need to buy a ticket. This money is used for operating the German railway system – train drivers need to be paid, trains bought and repaired, operations managed, and, most importantly, the railway network built and maintained. Where a train ticket pays for keeping the railway running, grid fees pay for maintaining the grid. In order to transport electricity from the place it is generated on to consumers, it needs to pass through the grid. And using the grid comes at a price: the grid fee.
Operating and expanding the grid needs to be paid for
The German grid is made up of many, often locally organised distribution grids and trans-regional transmission grids. The transmission grid is divided into four parts, each of which is operated by a different transmission system operator. TenneT and 50Hertz cover the northern and eastern parts of the country, while Amprion und TransnetBW manage the western and southwestern parts of the transmission grid. The four transmission grid operators and the around 900 operators of the local distribution grids are responsible for ensuring that the grid is managed and expanded in a safe and reliable manner. Part of the costs incurred by the operators for managing and expanding the grid can be passed on to the utilities that use the grid for transporting electricity to consumers. Utilities in turn pass on the costs to consumers – which they will find included in the grid fee billed per kilowatt-hour on their electricity bill.
Distributing grid fees more fairly
In 2016, the average grid fee for private consumers was 6.71 cents per kilowatt-hour. However, grid fees vary widely across regions, depending on the level of utilisation of the grid, age and quality of the power lines and many other factors.
The fact that grid fees currently vary across regions can be understood more easily by using the following example: if green electricity from the large number of wind turbines installed in the north of Germany is to be fed into the grid, it is particularly important to expand regional grids. The costs incurred for this by the grid operators in these regions are then passed on to consumers via the grid fee. This is why the fees in these regions, for example in Schleswig-Holstein and Mecklenburg-Western Pomerania, are particularly high. However, the electricity generated in these regions is not consumed only there, but is also transported on to the western and southern parts of the country that urgently need it. It is therefore unfair to ask people in the north of Germany to pay more for the expansion of the grid than people living in the west or south of Germany. This is where the Act on the Modernisation of the Grid Fee Structure (NEMoG) comes in. It provides that grid fees will be aligned in several stages, so that by 2023, grid fees will be the same everywhere across Germany (to find more about NEMoG, please click here).
Avoided grid fees
NEMoG also brings another significant change. Anyone feeding electricity into the local distribution grid currently receives a payment, also called ‘avoided grid fee’. The government introduced avoided grid fees back in 2005, thinking that if electricity was generated locally this would help avoid grid expansion costs. The idea was that electricity that was generated locally would be consumed locally, thus eliminating the need for using trans-regional transmission grids. However, it turned out that electricity that is generated locally is not always consumed locally, but often has to be transported via the trans-regional transmission grid to reach consumers. This means that volatile renewables such as solar and wind power do not help eliminate the need for grid expansion; on the contrary, they create the need for it. It is against this backdrop that the government decided to reform the avoided grid fee scheme (please click here to find out more).
Introducing clear rules for grid fees
Grid operators are not allowed to set their grid fees arbitrarily. The government has set out clear rules for how grid fees are to be calculated – rules that are enforced by the Bundesnetzagentur (the federal regulatory authority in charge of the energy market) and the regulatory authorities of the German Länder. The proceeds that grid operators receive from grid fees must not exceed a certain limit. The method for calculating this limit is sophisticated and takes into account a wide range of different factors; for example grid operators will be rewarded for working particularly efficiently. You can find out more about this limit here.