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What is the capacity tariff?

Since January 1, 2023, electricity bills have changed for everyone living in Flanders with a digital meter. An important factor here is the introduction of the capacity tariff – an initiative from the Flemish Electricity and Gas Market Regulator (VREG). With the new tariff, grid operator Fluvius will allocate greater weight to peak consumption. In other words, the less burden you place on the grid, the less you pay for energy distribution costs.

LeasePlan academy

The capacity tariff

In this LeasePlan Academy, guest speaker Bart Massin explains more about the capacity tariff that has been introduced since January 2023.

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Why is the capacity tariff being introduced?

We're moving towards a greener, carbon-free society. Among other things, this means that we'll increasingly use electricity instead of fossil fuels to heat our homes (heat pumps) and for transport (electric cars).

As a result, we'll use the distribution grid more and in other ways, which in turn ensures higher peak loads and may overburden the grid. To combat this effect, distribution operators must make significant investments. Take the example of thicker cables for distributing electricity – they cost billions of euros, which would make electricity unaffordable for Flemish families and businesses.

In order to prevent this situation, the regulator wants to encourage everyone to make efficient use of the electricity grid. The capacity tariff will ensure that those who cause high peaks will pay more than those who spread their consumption out. It is important for anyone who has items that are considered heavy consumers, such as a heat pump or an electric car, to spread their use and ensure smart operation.

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Consumption peaks must trend downwards The challenge is to try to flatten out consumption peaks as far as possible. Think of it like a dam and a river. In both cases, the amount of water flowing through each day is the same. However, whereas a dam allows a lot of water to flow through in one go at certain times, this flow occurs at a constant pace in a river. This is why we need to use the capacity tariff to convert our electricity consumption from a dam to a river. Today, the difference between consumption during the day and at night amounts to no less than 3,000 megawatts on average – a huge figure when you consider that the Vilvoorde gas power station only produces 400 megawatts and the Doel 1 and Doel 2 reactors only generate 500 megawatts each.

Impact of capacity tariff on your bill

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Our electricity bills are made up of various costs: energy costs, grid tariffs and taxes. The largest part of your bill, the energy costs, depends on how much you actually use. The capacity tariff only relates to part of the grid costs, which include the costs of installing, managing and maintaining the electricity grids, the costs of transporting and distributing electricity and more. At present, the grid tariffs amount to 18% of the total bill for an average family. Today, grid costs are calculated based on your overall consumption: the higher your consumption, the higher the grid costs you will pay. With the capacity tariff, you'll pay part of the grid tariffs based on the capacity you use.

To be clear, the capacity tariff is not an additional tariff – it is simply another way of distributing the grid costs across all consumers. The largest part of the bill is therefore still based on the number of kilowatt hours (kWh) that you use. It's clear that being energy-efficient pays off in the long term.

The new capacity tariff will only apply in Flanders. Brussels and Wallonia are excluded from the tariff. This arrangement has been in place for companies for several years now, but the system will now expand to households. However, the tariff can only be applied to users with a digital meter.

Day and night tariffs to disappear The distinction between day and night tariffs will disappear with the introduction of the capacity tariff. For the energy system, it's important that the supply and demand of electricity are constantly in balance. The day and night tariffs were created to make sure this is the case, with consumers being encouraged to use electricity at night. Yet the energy landscape has since been in a constant state of flux. We are increasingly generating electricity on a local level, often through renewable energy sources such as solar and wind.

The distinction between day and night tariffs is no longer a good fit in the current climate. Consumers no longer feel the need to use energy in sunny or windy periods and when large amounts of electricity are available. It also makes little difference to the distribution grid operators whether consumers use energy during the day or overnight, as the costs for laying and maintaining the grid remain the same. To ensure the grid tariffs reflect the costs in an appropriate manner in a changing energy landscape, the cheaper night tariff and the more expensive day tariff will disappear. This, too, will only have an impact on the grid costs, and not on the energy costs. Energy suppliers can therefore continue to offer contracts with different energy prices for day and night consumption.

Establishing peak consumption As with an average speed check zone, a digital meter will calculate the average energy consumption. The quarter in which the highest average peak is reached will then be analysed. The capacity tariff will charge the amount for this quarter, so you can make gains by levelling off your consumption peak and increasing consumption during off-peak hours. The lower the peak, the less you will have to pay on your electricity bill for that month.

Will you see savings on your bill? This may be the case if you spread your consumption. Refrain from using appliances or devices as often that are the biggest contributors to your high peaks, which in the first instance are those that demand a high capacity over a long period of time (such as a heat pump or an electric charging station). If you choose to spread the use of your charging station, you may be able to save on costs. In any case, you certainly don't have to give up on comfort or consign your daily schedule to the bin. Most household appliances can be turned in line with your usual routine, which won't have a huge impact on your highest peak. If you've got some appliances or devices that you can use at any time, such as a washing machine or drying cupboard, try to use them during lower periods of consumption. If you turn this into a habit, you can make some savings.

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Impact on drivers of electric cars

Recharge your vehicle at a slower speed and at regular intervals If you have a charging station to recharge your electric car, this requires significant long-term capacity. If you don't use your charging station smartly, it will push your peak consumption even higher. It's therefore worth spreading out how you charge your electric car more effectively. After all, many drivers are in the habit of plugging in their electric car as soon as they get home. However, if you cook and watch television at the same time as your car is charging, you will see a significant increase in your average consumption peak. That's why it's a good idea to charge your car at a slower speed and at regular intervals instead.

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Start generating your own energy If you've got solar panels, it's best to charge your car up during the day. Recharging your car while the sun's shining means you may be able to flatten out your highest peak.

Install a smart charging station It is also a good idea to have a smart charging station installed. Smart charging stations offer load balancing – a system that can adjust the electricity that flows to your car to avoid consumption peaks. This allows you to place a limit on energy consumption, which means the charging station will primarily start charging when there is enough energy in reserve. The charging station may even switch itself off for a while at peak times. And if you have two electric cars plugged in, the charger will distribute the set capacity across both vehicles as far as possible.

New technologies can help to lower your periods of peak consumption In the future, electric cars will also contribute to flattening the curve in yet another way. Two-way charging not only allows you to charge your car, but enables your car to feed electricity back to the grid – useful if you charge your car during the day using solar panels, for example. At peak times, a smart charger can then transfer energy from your electric car to the grid (Vehicle to Grid), to your home (Vehicle to Home) and to other electrical devices (Vehicle to Load). Car manufacturers are fully committed to developing this technology. It goes without saying that car policies will need to set out in detail what is – and what isn't – permitted.

How much you can save by being smart with peaks will naturally vary from one household to another, but this could easily amount to around €300 a year. Definitely worth it, in other words.

What is the capacity tariff? The capacity tariff is a new calculation for your use of the electricity grid. While it has nothing to do with the cost you pay for electricity itself, the new tariff does impact a chunk of your energy bill. The distribution system operator - in Flanders it’s Fluvius - makes sure the power reaches our homes and, of course, we also pay a fee for it. That amount has long been paid through our electricity bill. The way VREG (the Flemish Regulator of the Electricity and Gas Market) sets that fee is changing under the impetus of the capacity tariff. While the calculation used to look only at your actual consumption, now the focus is shifting to the highest quarter-hour peak in kilowatts (KW) recorded by your digital meter. Each month, that peak determines how much your fee shall be. The higher (or lower) the peak, the higher (or lower) the cost on your electricity bill.What is the capacity tariff for? The capacity tariff should ensure that we don’t overload the electricity grid. We are consuming more and more electricity today, especially considering that most families will soon have electric cars in their driveways. What’s more, we switch on many of our electrical appliances at the same time, which obviously has a heavy impact on the distribution network. To meet this challenge, the infrastructure would need to be constantly adapted. Not only is such a thing not feasible, but the cost of our electricity consumption would eventually become prohibitive. Compare it to a motorway where you sometimes have to queue for a long time during the day because everyone wants to pass at the same time. The road network is simply not equipped to accommodate so many cars. But if you use this road at night, there’s hardly any traffic and you can drive through smoothly. The capacity tariff is designed to alleviate peak hours on our power grid so that we consume power in a smarter way. We see a spike especially in the morning and evening. In fact, in Flanders, the difference between day and night consumption amounts to some 3,000 megawatts. That’s practically as much as the output of four nuclear power plants.When does the capacity tariff go into effect, and to whom does it apply? The capacity tariff will officially take effect from 1 January 2023. As the calculation requires a digital meter, the tariff will initially be used only for households that already have such a smart metering device. Flanders already has around two million of these digital meters, so when introduced, the tariff will immediately apply to a large number of users. By 2026, the capacity tariff should apply to the majority of Flemings. As the capacity tariff is a Flemish initiative, it will not be adopted in Brussels or Wallonia, for the time being. Several energy regulators operate in Belgium - in Flanders it’s VREG - and they are each responsible for their own authorities.How is the capacity tariff calculated? The capacity tariff breaks with the traditional method of calculation, which adds up the cost of your actual electricity consumption. The tariff looks at peak times and rewards users who smooth the curve of their consumption as much as possible. Every month, your digital meter calculates the highest quarter peak in kilowatts. So lowering that peak ensures that your costs will decrease. Be aware that a lower limit of 2.5 kW always applies (which, incidentally, also applies to households that continue to operate with an analogue meter). Most families fall easily above that, especially if you have an electric car to charge. So it’s not a target, but a way of ensuring that everyone pays a minimum contribution to grid costs. For now, the tariff does not yet take into account the times when you consume energy (Time of Use). Presumably, the need to add this variable will be analysed by 2024. How much can I save with the capacity tariff? Depending on your consumption, you can save around €125 a year if you make the necessary optimisation. That doesn’t seem like much, but it’s quite a nice sum that you’ll get back simply by being smarter about your energy consumption. Conversely, the capacity tariff may well drive up the cost of your energy bill if you don’t take your peak consumption into account.What does the capacity tariff mean for my electric car? Cooking at night or watching TV? Choose one. While it would substantially reduce your costs, it’s not an option for most families. Your electric car is one of the few energy consumers that you can adjust without sacrificing comfort. So by charging your car in off-peak times, you can save a lot. For example, it makes more sense to charge your car at a lower power level every day than to run your charging station at full power several times a week. Those with a smart charging station can definitely reap the benefits. By setting a maximum consumption, the car will charge less hard at times when you’re using other household appliances to the maximum. For example, if the charging station is set for a maximum consumption of 6,000 watts, it will factor this in, and make optimal use of the periods when you need less power. For example, at night or even during the day when working from home. Daytime charging is certainly useful if you have solar panels. As a fleet manager, what do I need to do to be ready for the capacity tariff? The capacity tariff requires first and foremost an adjustment on the part of the user – in this case, the driver of the electric vehicle. Still, as a fleet manager, it’s a good idea to communicate about this as clearly as possible to avoid unpleasant discussions. Indeed, unwitting drivers may suddenly be faced with a higher energy bill due to the switch to the tariff. As a fleet manager, you need to be increasingly aware of what’s going on in energy markets in the coming years. So inform yourself properly or get assistance. Good understanding is important for adapting your car policy. It’s also critical for avoiding a sudden resistance to electric cars among employees. At the end of the day, an electric car remains a win-win for employer and driver. What’s more, the capacity tariff clearly offers opportunities to further optimise your costs.

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