Proposed legislation for grid costs

Summary

Swedish Government has, through the Ministry of Infrastructure, issued a memorandum with proposals regarding a new law in respect of a so-called ”special investment space” (Sw. särskilt investeringsutrymme) for electricity grid operations (the Memorandum). The proposed legislation aims to encourage grid companies to make investments which increase the electricity networks’ capacity.

The law concerns grid companies with so called unutilized deficit in relation to the revenue frame during the supervisory period 2012–2015. The bill also has consequences for electricity grid customers, as the expected investments in electricity grids will mainly be passed on to consumers through increased grid tariffs. The proposal is expected to lead to grid customers collectively being charged approximately SEK 28 billion over a twelve-year period.

The law is proposed to enter into force on 1 January 2021.

Background

On December 5, 2019, the Government adopted the bill ”Deficit in relation to the electricity grid companies' revenue frames for the supervisory period 2012-2015” (prop. 2019/20: 53). The government bill aimed to prevent that deficits in relation to electricity grid companies' revenue frames for the period 2012-2015 are transferred to the supervisory period 2020-2023. The Government however stated in the bill that deficits should be allowed to increase the revenue frames provided that the revenues are used for investments in the electricity grids which are needed to meet capacity needs.

Through the Memorandum, the Government has now presented its proposal on how this should be regulated in a new law.

Proposed legislation

The proposed legislation in the Memorandum means in short that grid companies which have had so-called ”unused deficit” in relation to the revenue frame for the supervisory period 2012–2015 shall be given an opportunity to use the deficit through assignment of a so-called ”special investment space”. The Swedish Energy Markets Inspectorate assigns special investment space after applications have been filed by the grid companies.

If a grid company has been assigned a special investment space, the Swedish Energy Markets Inspectorate shall, when reviewing the revenue frame after the supervisory period, increase the revenue frame with a so-called “investment amount” (Sw. investeringsbelopp). The investment amount shall correspond to 75 % of the grid company’s investments during a supervisory period when deductions have been made from the investments with an amount corresponding to 1 % of the entity’s total capital base, as well as such investments that have been financed by connection fees.

This means that the grid companies must account for 25 % of the investment costs from their own capital, which is meant to prevent unnecessary investments that the electricity grid customers have no benefit from but which they must pay for.

Consequences

he purpose of the proposed legislation is to create incentives for increased investments in new electricity grids in order to for example prevent bottlenecks in the electricity grids. This will benefit the grid customers as there will be more capacity in the electricity grids. It is not clear what specific investments the proposal is intended to promote. What is clear however is that the special investment space is not intended to finance such basic investments which grid companies are already obliged to implement in order to maintain the electricity grid's standard according to current legislation.

The investigation estimates that the proposed legislation will lead to around SEK 28 billion may be allocated during a twelve-year period through electricity grid fees. It is however estimated that this money will be used for investments that will benefit customers.

According to the Memorandum, the unused deficits are unevenly distributed among the grid companies. This could mean that there is a risk that some customers may see their network tariffs substantially increased, while other customers may not be affected by increases.

The legislative process

The Memorandum is currently under consideration by referral bodies, who will submit their responses to it no later than 4 May 2020. The Council on Legislation will thereafter be asked to issue a statement on the proposal. Thereafter, the government will issue a bill during the autumn of 2020. The law is proposed to enter into force on 1 January 2021.