Background
What is delivery charge?
Delivery charge is separate from electricity as a product - we pay it to have the electricity transported from the power source to our outlets. We need to move energy from where it is generated to where we use it.
The cost lies in building new power lines and maintaining the old ones to ensure a steady delivery of electricity - this cost must be paid by end-users, whether they are private or commercial customers.
The point is that you should pay for what you use to make the cost more fairly distributed than if, for example, everyone paid the same amount through regular taxes. Since the demand for electricity varies (and thus the capacity of the power lines), it is also essential to consider when you have used energy - not just the amount of energy used - when paying the delivery charge. This is the reason why the delivery charge is not straightforward in its structure.
Why is it organized this way?
Since 1990, DSOs have been more or less separated from power producers and electricity retailers that sell electricity to end-users. Each DSO has a monopoly on operations in a specific geographical area and is, therefore, closely regulated by the authorities. This includes income limits and other guidelines for operations and pricing to end-users.
Each DSO operates in unique geographical areas, and as a result, there are significant differences in the cost and ease of building and maintaining the grid. As of 2022, there are about 80 DSOs in Norway, but the trend is towards mergers, so this number is expected to decrease significantly. DSOs can save a lot by operating more efficiently and equalizing costs, which is likely a significant reason for these mergers.
“New Delivery Charge” from July 1st, 2022
The power grid must be built to handle all simultaneous electricity use. If everyone uses electricity at 5 PM, the power grid must have sufficient capacity to handle it. Just imagine building highways to handle all traffic at the same time without creating congestion. In practice, this means that the power grid would have unused capacity most of the time, and there is a lot to save by equalizing consumption on a large scale. This way, we do not need to maintain as much, and we can postpone large-scale expansions - which, in turn, becomes cheaper for everyone and preserves nature and local environments. This is the idea behind the new policy decisions and why DSOs are now required to focus more on when consumption occurs, as it is equally important as the total power consumed.
This is where the so-called capacity charge (also known as power charge or differentiated fixed charge) comes into play, which means that it will cost more over time if you use a lot of power simultaneously within an hour. Some grid companies have had this structure for a while, but as of July 1st, 2022, it became legally required to implement it in this way. Most major and many small grid companies have adopted a similar model where the highest hourly consumption for each day is compared to peak hours from other days in the month, and the three highest peaks are selected. The average of these three peaks ultimately determines the cost, where specific kWh intervals (0-2, 2-5, 5-10, etc.) correspond to the monthly cost - in a price ladder that is often quite cheap at the lowest level but quickly becomes more expensive with high simultaneous consumption.
These models were implemented on a large scale in the summer of 2022 but are still subject to change. The structure has largely been maintained, but the prices have often been subject to adjustments. Furthermore, parts of the energy charge are also changing, with certain rates introduced to achieve a similar effect as the capacity charge, where equalizing or shifting consumption to periods with less pressure on the grid is rewarded to a greater extent.
Consequences of changes in the delivery charge
It is estimated that the changes in delivery charge will only make it more expensive for about 20% of households, namely those with the highest simultaneous consumption, i.e., the most uneven usage patterns. In many cases, these households can make simple adjustments to even out their consumption and avoid price increases over time.
What all electricity customers have in common is that they now have a significantly greater opportunity to influence what they get on the bill and will be more rewarded for making energy-saving measures. It also becomes more profitable to save energy in general, meaning that reducing total consumption will usually also lower the peaks accordingly.
Reducing consumption peaks also has a long-term effect, as it reduces the companies' investment needs, potentially leading to a lower cost basis and consequently lower grid rental for customers in the future.
More efficient operations and reduced need for expansion (or at least postponements of new projects) also preserve local environments and nature, and reduce emissions and raw material use associated with construction.