The Ministry of Economic Affairs and Employment has on 16 January published a draft proposal for amending the Electricity Market Act and certain related legislation. The objective of the amendments is to restrain electricity transmission and distribution prices through actions which decrease the electricity network operators’ cost level and curb its increase. The reason for the proposed amendments is public criticism of the price increases resulting from the strict security of supply requirements introduced in 2013. Please find below a brief overview of the draft proposal.
Lower cap for increase of payments of transmission and distribution system services
According to the draft proposal, a network operator may increase the payments of transmission and distribution system services no more than 12.5 per cent compared to the payments during the preceding 12 months. The current cap is 15 per cent.
Obligation to develop the network in cost efficient manner
The draft proposal includes explicit cost effectiveness requirements in addition to the existing regulatory framework. Network system operator should actively plan, build and maintain electricity network in cost effective manner to produce the transmission and distribution services to network users. The assessment of cost effectiveness would include comparing a system operator’s cost level to costs which it could in reality achieve. Furthermore, the assessment of cost effectiveness of development measures should take into account the measures as a whole and the entire life cycle of the measures.
The distribution system operators (DSOs) would need to include the planned measures in their development plans. According to the proposal, the plans should, in addition to the currently required information, specifically include more detailed plans for major distribution network investments necessary for the maintenance of the distribution system’s capacity and connecting new loads to the distribution system during the next ten years, including electric vehicle charging infrastructure, plans for possible use of demand response, electricity storage, energy efficiency measures and other resources as an alternative to expansion of the distribution system’s capacity and appropriate comparison of the cost effectiveness of the development measures. The rationale for these more detailed requirements is to ensure that the DSOs consider more broadly all possible alternatives in addition to ground cables to renew the gird, expand its capacity and increase the level of security of supply.
The Energy Authority would assess development plans and would have the power to require changes to the plans if the requirements concerning content of the plans, quality of distribution system operations, security of supply or cost effectiveness are not met.
Amendments to security of supply requirements
According to the draft proposal, the current timeline for meeting the security of supply requirements is extended for such distribution system operators on which area of responsibility the medium voltage grid (at least 1 kV but less than 70 kV) has been no more than 60 per cent ground cable on 31 December 2018. Such distribution system operators would need to meet the security of supply requirements for 75 per cent of their network users, excluding recreational dwellings, by 31 December 2028 and for their entire network at latest on 31 December 2036.
To compensate for the above described extension, the standard compensations payable for long interruptions in electricity distribution would be amended so that an end user would receive 50 per cent reduction in annual network service fee for interruption lasting at least 48 hours but less than 72 hours, 100 per cent reduction for interruption lasting at least 72 hours but less than 120 hours, and 150 per cent reduction for interruption lasting at least 120 hours but less than 288 hours.
Amendments to the Act on Supervision of the Electricity and Gas Markets
According to the Electricity Market Act, the pricing of network system services must be reasonable. The Energy Authority supervises the pricing of network system services and establishes the methods for determining the network service fees and profit of network system operators, current methods are in force for two four-year supervisory periods between 2016 and 2023. According to the draft proposal, the Act on Supervision of the Electricity and Gas Markets would be amended to allow network system operator to balance the potential deficiency compared to the reasonable profit confirmed for a supervisory period during two four-year supervisory periods following the particular supervisory period, as opposed to current one four-year supervisory period. The intention is to alleviate the need for larger one-off increases.
Other amendments to powers of Energy Authority are proposed to ensure it can supervise the obligations of the draft proposal and to implement certain articles of EU directives and regulations concerning the electricity market.
Opinions regarding the proposed changes can be delivered to the Ministry of Economic Affairs and Employment by 14 February 2020. The Government’s objective is to send the proposal to the Parliament by the end of March, which should allow their entry into force before summer 2020. The draft proposal includes transition periods for certain obligations.
Further legislative changes regarding energy market are expected during 2020 due to the implementation of the EU Clean Energy Package and the government programme, which aims for Finland to be carbon neutral by 2035.
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