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Connection and network charges

8.1 National and European market and regulatory frameworks

8.1.1 Connection and network charges

The BEMIP countries apply different connection charging regimes to power producers, as illustrated in Figure 8-1 and explained in further detail below. These differences imply significant differences in the commercial viability of otherwise identical offshore wind projects between member states. Other things being equal, these differences are likely to distort the pattern of investment and may result in inefficient offshore wind investment within the region.

The EU Electricity Directive (2009/92/EC) grants flexibility to EU member states to develop their own grid tariff methodologies, reflecting the peculiarities of the national electricity system.

ENTSO-E categorises these connection charging regimes using the following definitions:

Super-shallow: All connection costs are socialised via grid tariffs; no costs are charged to the connecting entity.

39 3E, DWG, DNV GL, ECN and CEPS (2015): North Sea Grid. Offshore Electricity Grid Implementation in the North Sea. Final Report. 24/03/2015.

Shallow: Connecting users pay for the infrastructure used exclusively to connect their installation to the transmission grid (line/cable and other necessary equipment).

Deep: Connecting users pay shallow charges and the cost of any reinforcements/extensions required in the existing transmission network.

Figure 8-1: Type of connection charges in BEMIP countries

Source: THEMA Consulting Group based on ENTSO-E (2018). Note: Striped colouring indicates that various connection charges may be applied to different generators within a Member State.

Relatively super-shallow regimes

Germany and Denmark generally apply super-shallow connection charges to offshore wind farms. Although the connection cost regime does not provide any direct incentive to developers to help minimise the costs of connection, the authorities are still able to ensure the efficient placement of offshore wind farms through a centralised model of site identification. German offshore projects do not bear the costs of grid connection, except as relates to the grid from the offshore wind park to the offshore transformer station. In Denmark, investors bidding into the auctions do not pay for grid connection or transmission costs, as these costs are paid by the TSO. However, for the upcoming tender for the Thor offshore wind farm, the offshore substation and connection cable to the onshore grid will be part of the tender and will be financed through subsidies for the wind farm.40

The exact definition and corresponding practice of connection charging regimes varies between countries, which means that the lines between the regimes may be blurred in practice.

Nevertheless, the ENTSO-E overview clearly shows that there are fundamental differences in the connection charging regimes in the Baltic Sea region.

Relatively shallow regimes

Finland and Poland formally have shallow connection charges without centralised site selection. In Poland, the TSO covers the costs of reinforcement and development within the


https://ens.dk/sites/ens.dk/files/Vindenergi/brief_tender_for_thor_offshore_wind_farm_30march 2019.pdf

Super shallow to partially shallow

Shallow Shallow to super shallow



existing network, while electricity producers pay for the direct line and any extension or rebuilding costs for the substation. Finland has a standard fee based on the average costs of connection infrastructure, but developers are directly responsible for the financing of infrastructure to bring the power to a connection point nominated by Fingrid. As a result, the developer can face significant effective connection costs beyond the formal connection charge.

Relatively deep regimes

Connection charges in Sweden, Estonia, Latvia and Lithuania are comparatively deep. In Sweden, generators connecting to the grid pay the direct costs related to this (lines, substations etc.) and may be asked by the TSO to cover deeper reinforcement works. In practice, deeper network costs are often not passed on through the charge. There is, however, an ongoing debate in Sweden about whether connection charges for offshore wind farms should be subsidised. The 2016 Swedish political agreement for energy states that connection fees for offshore wind should be removed and, in 2018, the Swedish Energy Agency published proposals to remove the grid connection costs for offshore wind power at the request of the government. However, it has since concluded that such measures may be incompatible with state aid regulation.

In Estonia, network connection charges, including necessary reinforcements in the grid, are paid by the project developer. However, exemptions for offshore connection charges are being considered. In Latvia, all producers pay a connection fee, which covers all connection equipment and reinforcement. The connection fee is based entirely on the actual costs of connecting the relevant assets.

Although connection charging in Lithuania is generally deep, renewable energy producers have so far faced reduced grid connection charges. In particular, renewable energy plants with a capacity of more than 350 kW only bear 40% of the associated connection costs, which include any necessary grid developments costs.41 However, the Ministry of Energy submitted a draft law on Energy from Renewable Sources on August 10th, 2018 that would require renewable energy producers to cover all of the associated connection-related costs. 42

Other network tariffs

Another factor that influences the competitive position of offshore wind is the obligation to pay generator network tariffs (G tariffs). Throughout the Baltic Sea region, generators are only obliged to pay a G tariff in Denmark, Finland and Sweden (ENTSO-E, 2018). These tariffs apply to all generators and, as such, do not affect domestic competition (except for the possible distortion between technologies with different load factors where capacity is used as the charging base). However, these tariffs clearly affect the relative profitability of offshore wind projects across the region. This effect of these tariffs is most marked in Sweden, where generators are currently paying around 38 per cent of overall TSO revenues recovered through capacity charges on consumption and generation.

41 http://www.res-legal.eu/search-by-country/lithuania/single/s/res-e/t/gridaccess/aid/grid- development-15/lastp/159/

42 https://enmin.lrv.lt/en/news/government-to-consider-a-new-model-for-development-of- renewable-energy

Current EU regulation (838/2010) limits the maximum average G tariff in the Nordic region to 1.2 €/MWH. For other countries in the Baltic Sea region the maximum allowed G tariff according to the EU regulation is 0.5 €/MWh.