BLOGJarmo Partanen: Significant Changes to The Finnish Energy Authority’s Regulatory Model

11.11.2021 | Blog, Electricity Distribution

Based on the amendments to the Electricity Market Act approved in the spring, The Energy Authority has updated the principles for the regulation of electricity distribution business. The most significant changes are related to the unit prices of network components for 2022 and 2023, the methods for determining the so-called WACC percentage used in the calculation of a reasonable return, and the preparation and content of network development plans.

Updates to the principles for determining unit prices and WACC percentage are technical changes that will have a significant impact on the reasonable turnover allowed to DSOs in the coming years. The reductions in unit prices are the result of more efficient operations by DSOs and service providers.

A major fundamental change is related to the content and accounting principles of electricity network development plans. In addition to achieving the maximum disruption times of 6 h / 36 h set as boundary conditions for security of supply, many other issues need to be considered and justified in the development plans. The development plans must first set the required security of supply targets for the different areas for 2028, 2036, and beyond. Once the target limits have been set, the development plans must determine the operating models (investments and operational functionalities) to achieve them economically.

What are the acceptable reliability levels in the use of electricity in different areas?

The requirement for DSOs to base the operating models presented in the development plans on a comprehensive analysis (forecasts) of changes in the operating environment is relevant, but at the same time challenging. The role of electricity in sustainable development is growing substantially. Electrified transport, electrified energy-efficient heating of buildings as fossil fuels are phased out and wood burning gradually becomes a ‘negative’ event, and the digital remotely working society is setting new demands on security of electricity supply in different areas. The Electricity Market Act defines the maximum outage times for 6 years 6 h / 36 h, but in more and more cases, they are too long from the point of view of electricity users and society. Therefore, DSOs must determine a strategic forecast of changes in the operating environment and their effects, e.g., security of supply levels.

How are levels concerning security of supply achieved cost-effectively?

The results of the strategic analysis / forecast of the operating environment serve as a starting point for the question of what measures and activities will achieve the objectives and boundary conditions of the strategic forecast within the desired timeframe. Alongside traditional grid investments, energy storage, electricity flexibility, local generation and operations are tools to determine the best solutions in terms of life cycle costs. In addition to life-cycle costs, which consist of investments, operating costs and interruption costs, it is worth considering, e.g., sustainability issues related to technology and land use.

 

Jarmo Partanen
Professor Emeritus Jarmo Partanen