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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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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.