The power fee for electricity is not an additional bill, but a fairer way of distributing the costs of the electricity network

Finland is electrifying rapidly. Electric cars, heat pumps and different heating solutions increase the use of electricity, especially in cold hours. The capacity of the electricity grid is built in such a way that it also lasts for these few critical hours a year, when electricity consumption is at its peak. As peak consumption peaks increase, the need for investment in electricity networks also increases.

When discussing transfer payments, one thing is too often not said directly: the current pricing model socializes a significant part of the costs of electrification to be paid by all electricity consumers.

Electricity networks are strengthened due to local power spikes caused by changed consumption, but the costs of financing the investments are spread evenly even to those consumers whose consumption has not changed at all.

Because of this, the basic fees, which are hated by many, but also the fees based on the amount of energy have been increased and will continue to be increased, especially if the power fee is not introduced.

The effect of peak power can surprise you

The cost growth of transfer fees, which is especially unnecessary, can be seen in geothermal solutions for apartment buildings. When a housing association switches from district heating to geothermal heating, its need for peak power of electricity can multiply, even if the annual consumption remains moderate.

During periods of frost, the efficiency of heat pumps decreases and the systems need additional electricity exactly when the entire electrical system and network are at their most loaded. In the local distribution network, this can mean renewing transformers, strengthening cables and making new investments, the costs of which are not only borne by the building company that made the change, but are once again passed on to everyone.

From the point of view of an individual property, switching from district heating to geothermal heating can seem logically attractive when the annual electricity consumption remains moderate. Often, the problem in these calculations is that the effect of peak power on the electrical system and network is ignored. The price of electricity is often at its highest just when you need it.

Cost sharing is a zero-sum game

At the system level, this ultimately results in electricity price spikes and transmission fees increasing for everyone. In the longer term, the cost burden of customers who remain in the district heating network also increases, when the fixed costs of the heating network are distributed among a smaller number of customers. This creates a double socialization of costs.

The Energy Agency issued a basis for determining payments, in which there are now national marginal conditions for the power payment aimed at consumers. The basis here is that the incomes of the electricity network companies are regulated, so when one payment component increases, the other decreases.

The power charge does not increase consumers’ costs. At best, the power fee can lighten the cost burden, but in the end, cost sharing is a zero-sum game.

In practice, the result of the power fee would be that those who use electricity regularly would pay less, i.e. people who use wood stoves in freezing temperatures, electric heaters, owners of summer cottages and many district heating houses would be able to pay less than now.

Conclusions have been made about the winners of the system from the threshold limit of the Energy Agency, although in reality nothing can be concluded from them. For many, the transfer fee is reduced more than the power fee, even if the threshold limit is exceeded.

It is honest to admit that there are also losers in the zero-sum game. In the longer term, the losers in the redistribution of costs caused by the power fee are those whose electricity use is variable and focuses on short power peaks.

There are losers in a zero-sum game

It is these users who benefit the most from strong networks, as their consumption utilizes the cheapest hours of electricity on the market, and without sufficient capacity, fast charging of electric cars and large heat pumps would not be possible.

Performance-basedness can also guide consumption behavior. Housing companies would have an incentive to dimension their heat pumps more realistically and try to use the benefits of the district heating system as a support for heating. The charging and sauna use of electric cars can be scheduled so that the simultaneous load is reduced.

This does not reduce electrification, but makes it more controlled. As a result, the network can be strengthened in a more targeted manner, which curbs the upward pressure on transfer fees.

Journalism around the performance fee has been lazy. No one has asked the politicians who oppose the power charge: whose costs do they want to increase? Now it will be decided whether the costs of electrification will be socialized for everyone or whether efforts will be made to contain the price and allocate it more on a causal basis.