Low-voltage tariffs

After briefly describing the low-voltage tariffs currently in use, they are analyzed in terms of the theory of public utility pricing.

4.3.1 Description

Swedish Association of Supply Undertakings (SEF) is a trade association comprised of local retail distributors of low-voltage electricity. The SEF had model tariffs drawn up to serve as recommendations for its member firms. The purpose of these rates is to achieve a uniform structure for low-voltage tariffs, but not to recommend a uniform tariff level. Each redistributor is supposed to determine the level of individual tariff components on the basis of his own cost conditions and 'desired income'.

The idea behind these model tariffs is that low-voltage rates should have the same fundamental structure as high-voltage tariffs. Therefore the

model tariffs are also composed of a four-part base tariff. However, this tariff structure would burden numerous categories of small subscribers with high measurement and administrative costs. This is why the base tariff has been supplemented by other tariffs which do not require such extensive measurements (so-called intermediate and basic tariffs). Sub-scribers whose user profile deviates from that of other categories may request special charges known as auxiliary tariffs. We limit this brief description to those tariffs most relevant for normal household con-sumers, i.e., the basic and intermediate tariffs.

The costs of supplying low-voltage electricity are composed of charges for crude energy, the central network and local transmission (so-called limit costs). Administrative costs are, of course, also included.

The basic tariff refers to current with a voltage of 10 kV as well as 400 V. It differs from the base tariff in that it does not contain any peak-load (power effect) charge. Instead, this charge has been incorporated into the energy price by distributing the central network costs over the price/kWh. The basic tariff for 10 kV current is intended primarily for industrial firms and similar institutions where large amounts of electric energy are required for limited periods of time, as well as for firms with low consumption during a large part of the year. The basic tariff for 400 V current predominates with respect to the majority of small sub-scribers. The fixed charge included in the basic tariff is somewhat lower than the corresponding charge in the base tariff. The recent basic tariff for small subscribers (400 V current) has been:

Fixed charge: SEK S/year (where S = 400 for 16 A) Energy price: SEK 0.19/kWh.

The intermediate tariff is an additional rate established for subscribers with relatively high consumption of 400 V current, e.g. consumers with electrically heated homes. It may be regarded as a technical compromise between the base and basic tariffs. Instead of a peak-load charge to cover the power cost (as in the base tariff), subscribers pay a reduced peak-load charge and a higher energy price. In all cases, a nonrecurrent charge is also levied on new subscribers. This charge is designed as a contribution to financing the investment costs of electricity suppliers. Thus the size of the annual charges included in the different tariffs also depends on the level of the one-time charge.

4.3.2 Time variations in prices for low-voltage electricity

As the tariffs recommended by the SEF and high-voltage tariffs have identical structures, both types of tariffs may be subjected to the same

criticism. As a result of the simplified average estimates which underlie low-voltage tariffs, their energy price component is an even poorer reflection of the time variation in SRMCs. Low-voltage tariffs are to a large extent devoid of any temporal variation in the price of electricity based on changes in variable costs. Instead, low-voltage tariffs have been designed with a simplifying purpose in mind, so as to take into account available meters and consumers' limited possibilities of reacting to temporal variations in electricity prices. The main disadvantage is that a kWh supplied during a weekday in winter costs as much as a kWh delivered in the middle of summer, even though the variable production costs (SRMCs) may differ considerably; approximately SEK l/kWh fore such extreme peak loads in winter that gas turbines have to be switched on as compared to approximately SEK 0.08/kWh for nuclear power in summer.

In Sweden today, there is a growing interest in favour of efforts to introduce low-voltage electricity prices which reflect time variations.

One reason is a desire to utilize surplus electric energy during off-peak periods. Another is an attempt to limit the requirements for expansion of the distribution system mainly to a foreseeable increase in demand during peak-load periods. This, in turn, depends on a wave of innovations in heating, prompted by the drastic increase in oil prices during the past fifteen years. Examples are composite furnaces for electricity, oil and/or solid fuels, electric cartridges and cassettes for flexible heating, heat pumps, new heat-storage systems, log-fire stoves, etc. The rapid tech-nological development of meters is another important factor in explain-ing this growexplain-ing interest.

Two different kinds of time variation in the price of low-voltage electricity are currently under discussion in Sweden:

• interval pricing, whereby the price of electricity is differentiated among different time intervals but remains constant within each interval;

• momentary pricing, whereby the price of electricity is continuously adjusted according to variations in SRMCs.

In a comparison between interval and momentary pricing, the following differences should be taken into account. First, when interval pricing is adopted, the consumer knows relatively far in advance what the energy price will be and has time to adapt to it. In momentary pricing, the price for the coming 24-hour period is hardly known in advance, although this can be accompanied by approximate forecasts. Second, when interval pricing is in effect, the consumer receives some kind of price guarantee,

even if costs may deviate considerably from this price; whereas in momentary pricing, the gain or loss which arises when the energy price drops or rises is passed on directly to the consumer. The advantages of momentary pricing are greatest for subscribers with the most flexible heating systems. Thus this pricing provides higher incentives to acquire flexible systems than interval pricing.

New meters are under development in Sweden which are capable of adjusting to stochastic variations in SRMCs (see Karlsson Hjalmarsson and Hélzen). This does not imply that consumers have to keep a constant watch on variations in the SRMCs in order to make a decision. The meters are programmed to switch different electrical appliances on or off auto-matically in accordance with changes in the price of electricity. One of the implications of access to efficient and cheap meters of this type is that the coordinated Nordic market for high-voltage electricity could be extended so that, in addition to the power producers, it could also serve other consumers of high-voltage electricity. Some consumers of low-volt-age electricity might also be interested in installing such meters. This would, for example, facilitate an automatic changeover to electricity during off-peak periods for composite heating systems (such as oil and electricity). The size of the demand for these meters from consumers of both high- and low-voltage electricity will depend on the price at which the meters can be manufactured.

As shown in the Appendix, a switch from uniform to interval pricing of low-voltage electricity in Sweden is socially efficient to a high degree.

The extent to which further time adjustment is even more profitable for some consumers has not yet been determined and is much more difficult to evaluate.