What are transmission tariffs?
When you use electricity, you will have to pay for two separate products. First, you pay a power price for the electricity you buy from your power supplier. Second, you pay a transmission tariff to your local network company for transmission of this power.
Transmission tariffs cover the network company power transmission costs, whereas the power price is a market price resulting from competition between the various power suppliers.
The network company has a monopoly on transmission of power in the area you live. NVE does not determine each network company's transmission tariffs, but sets an upper limit for the income the company can get from its customers. This regulation is to prevent that you pay a higher price than necessary for transmission of power.
In addition, NVE has made rules that decide the structure of the tariffs. Tariffs to household customers must consist of different components, such as a fixed component (NOK/year) and an energy component (NOK/kWh).
Related articles: Financial regulation of network operations
Costs related to transmission of electricity
Transmission tariffs shall, as far as possible, reflect the network costs related to transmission of electricity. Parts of these vary according to network usage. When electricity is transmitted, heat develops in lines and transformers. This means that some of the electricity disappears on its way from production to consumption. The network company must pay for this loss of energy.
For a typical local network company, the electricity loss can amount to some 10% of total transmission costs.
In addition to losses, there are capital and maintenance costs. These are fixed, and not dependant on the volume of power transmitting through the network.
Fixed component and energy component
The network companies' transmission tariffs are regulated by the regulations no. 302 of 11 March 1999 concerning financial and technical reporting, permitted income for network operations and transmission tariffs. The regulations require that tariffs to household customers must consist of a fixed component and an energy component.
The fixed component is a fixed annual amount, and shall at minimum cover customer-specific costs. These are costs related to metering, settlement, invoicing, etc.
The energy component depends on consumption (NOK/kWh), and shall at minimum cover costs of marginal loss (the loss that occurs when one extra kilowatt-hour is taken out, at a given load) in the network.
In addition, the transmission tariff, i.e. fixed component + energy component, shall cover the fixed costs in the network.
Apart from these rules, the network company itself decides on the distribution between the two tariff components. For household customers, usual practice is to set the fixed component so that it covers customer-specific costs and a share of the fixed network costs, whereas the energy component covers loss costs and the remaining share of the fixed costs.
Transmission tariff level
Transmission tariffs usually vary from company to company. Differences in tariffs between the network companies, are mainly due to two factors.
- The companies' costs related to owning and operating the network may differ. This has a direct impact on the tariffs.
- The network companies can choose a different scale between the tariff's fixed component and energy component.
Large differences in tariffs between network owners are usually due to differences in operating conditions. Topographic and climatic conditions will influence costs. It is usually more expensive to supply an area with low settlement than a population-dense area. A common element of these factors is that they cannot be changed by the network company.
Differentiation of tariffs between different customers
Many network companies choose to divide their customers in groups, charging different tariffs from different customer groups. It is not unusual that network companies have different tariffs for households and country cottages, and that the fixed component is higher for cottage customers than for household customers. The reason for this is that cottage customers normally have a lower utilisation of the network.
Because of low annual consumption, a cottage customer will contribute less to the coverage of fixed costs through the energy component. To make sure that also customers with low consumption cover their share of fixed costs in the network, the fixed component is therefore somewhat higher than for household customers.
However, the difference between the tariffs' fixed components must not exceed the level where a cottage customer in total pays more of the fixed network costs than a typical household customer.
