Avoided network fees
Under section 18 (1) of the Electricity Network Charges Ordinance (StromNEV), operators of distributed generation plants are entitled to payment from the operator of the distribution network into which they feed electricity.
Section 18 StromNEV in the version of Article 2 of the Ordinance of 27 July 2021 reads as follows:
Charge for distributed feed-in
1. receives payment under section 19 of the Renewable Energy Sources Act (EEG);
2. receives remuneration under section 6(4) sentence 1 and section 13(5) of the Combined Heat and Power Act (KWKG) and the avoided network charges are included in such remuneration; or
3. from combined heat and power plants receives payment under section 8a(1) KWKG.
Network operators shall be treated in the same way as operators of distributed generation plants where they feed into an upstream network and avoid network charges for network levels further upstream at the network.
(2) The distributed avoided costs of the upstream network or transformation levels on which the charge for distributed feed-in is based shall be calculated separately for each network and transformation level. They shall be based on the actual avoided energy in kilowatthours, the actual avoided power in kilowatts and the network charges of the upstream network or transformation level in accordance with section 120(2) to (6) EnWG. The calculation as set out in sentences 1 and 2 shall be based on the figures for the individual transmission system operators as specified in Annex 4a. The avoided energy, taking account of the network losses of the relevant network or transformation level, shall be the difference between the electrical energy withdrawn by final customers, redistributors and the downstream network or transformation level in kilowatthours and the electrical energy withdrawn from the upstream network or transformation level in kilowatthours. The avoided power shall be the difference between the concurrent annual peak load of all withdrawals from the network or transformation level and the maximum load at the upstream network or transformation level in the relevant year in kilowatts.
(3) The avoided costs calculated in accordance with subsection (2) of the relevant upstream network or transformation level shall be allocated appropriately to the individual distributed feed-in according to the individual avoided energy and avoided power. Operators feeding in from distributed generation plants without a predominant share of the avoided power may choose between a calculation on the basis of the actual power avoided and an alternative method with a fixed avoided power. In the case of distributed feed-in without interval metering, only the avoided energy shall be taken into account.
(4) Operators of electricity distribution networks are obliged, after the end of a calculation period, to determine the difference between the total charges reimbursed to the operators of distributed generation plants and the avoided costs of the upstream network or transformation level calculated in accordance with subsection (2). The difference plus an appropriate rate of interest shall be taken into account in the next calculation period.
(5) The avoided network charges as referred to in subsection (1) that result from the calculation in accordance with subsections (2) and (3) for the relevant generation plant shall be reduced for plants with volatile generation as from 1 January 2018 in steps of one third of the original base figure each year as at 1 January of each year."
Therefore the sum paid is determined by the network charge avoided by the downstream DSO by demanding less electricity (mainly capacity charge) from an upstream network or substation level due to the local feed-in. The concept of avoided upstream network charges must not be confused with actual avoided network costs on the local or upstream DSO or TSO level. As a general observation, network costs are not avoided by power-plants at lower voltage levels, since the grid connection is always dimensioned to be ready to supply the total amount of electricity in case the local power-plant is in revision or otherwise not operating.
In 2017 the Network Tariff Modernisation Act (NEMoG – a law changing several articles in the Energy Industry Act (EnWG) und StromNEV) came into force, which adjusted, among other things, the entitled parties and put a cap on the amount of the avoided network charges.
The initiated changes concerning the avoided network charges took measures in a sequence of four stages. The Bundesnetzagentur has taken the completion of the third stage of the NEMoG in 2019 as an opportunity to draw an interim conclusion about the effects of the avoided network charges, which can be found in detail in the 2020 Monitoring report, beginning at page 171. (Monitoring report 2021 - Key findings and summary (pdf / 2 MB)).
- With the reform, the calculation for the avoided network charges was modified in a way that esp. the costs of Offshore-Wind-Connections carried by the TSO were to be eliminated in the avoided network charges throughout the whole cascade of network levels. At the time the cost for Offshore-Wind-Connections were part of the regular TSO network tariffs. These costs are immense and could logically not be avoided by local fed-ins. (Stage 1)
- Also as of 2018 no avoided network charges were payable for new facilities with wind or solar generation (so-called volatile generation) pursuant to section 120 (1) para 2 of the EnWG. This also applied to volatile generation facilities that are "repowered" to a different voltage level. They were to be treated as new facilities and were excluded from the payment of avoided network charges beginning in 2018 (Stage 2). As a matter of fact, this did not reduce the amounts payable to renewable generators, since they never directly received the avoided network payment. They are financed by the EEG-mechanismen. The payments went to the EEG-account managed by the TSO. The impact of stage 2-mearsures was exclusively with the EEG-levy mechanism.
- In addition, starting in 2018, the avoided network charges for volatile facilities already in existence were gradually reduced in three steps until with the 2020 calendar year the avoided network charges for volatile generation facilities was eliminated entirely (stage 3).
- Also beginning 1st January 2023 all new, non-volatile generation facilities will be excluded from the avoided network charges provision (Stage 4).
In the years prior to the introduction of the NEMoG, the overall amount of avoided network charges paid was continually on the rise and reached its peak in 2017 at € 2.5bn.The NEMoG had the effect of reducing the amount of avoided network charges paid in 2018 to € 1.3bn. In 2019 the actual costs fell to €1.2bn, of which € 0.2bn were for volatile renewable generation facilities. Detailed numbers can be found on a annual basis with the EEG annual account at https://www.netztransparenz.de/portals/1/EEG-Jahresabrechnung_2020.pdf
The network operator into whose network area distributed feed-ins are provided is responsible for paying the avoided network charges since it is in this network that upstream network charges are avoided. The network operator then passes these costs on to its network users, just as he could have done with higher charges from the upstream network operator. Accordingly, network users in network areas with a high amount of local feed-ins are more heavily burdened than network users in areas with a low amount of distributed feed-in.
Remaining burden from avoided network charges
Non-volatile facilities that went into operation before January 1st 2023 will continue to be remunerated. This includes mainly the following fuels:
- Waste
- Battery storage powerstation
- Biomass
- Lignite
- Landfill gas
- Natural gas
- Geothermal
- Pit gas
- Sewage treatment plant gas
- Run-of-river
- Mineral oil products
- Pump-storage power plant
- Hard coal
The non-volatile facilities already in existence will currently remain under the provision with no time limit.
There are several arguments against maintaining avoided network charges.
The introduction of the principle of avoided network charges was based on the assumption that electricity flows from the highest to the lowest voltage level. This basic assumption of avoided network charges, specifically that distributed feed-in are reliable and would lead to a reduction in network expansion measures in the medium to long-term, originated around the turn of the millennium. This assumption was repeatedly criticised. The market environment for conventional generation has dramatically changed since then which led to shutdowns of power plants. Also in the meantime in certain regions in Germany network expansions take place in order to integrate decentralised production into the European Energy market. Bundesnetzagentur took the NEMoG as a turning point to consider the opportunity to consider the various instruments that can be used to guide and support network expansion on the basis of the original basic assumption. No evidence for the assumption could be found.
The concept of avoided network charges assumes that distributed feed-in will reduce consumption from, and thus use of, the upstream network, thereby saving network infrastructure costs. The operators of the distributed generation plants should receive the resulting savings as remuneration. The remuneration that would otherwise be paid by the upstream network operator is provisionally set as the level since the actual amount of remuneration avoided cannot be determined.
The network is generally dimensioned so that the peak load of the year for electricity can be met solely by taking from the upstream transmission or distribution network and not taking distributed generation into account. And this for a good reason – otherwise a new dependency upon local generation is created with all the negativ consequences of a monopoly and cross-subsidies within a vertically integrated enery undertaking.
Also an infrastructure without structural congestions is the basis for the integration of decentralied generation into the European Energy Market and Demand-Response on lower voltage levels in the future.
Date of modification: 2022.06.24