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25 June 2018
The Danish transmission systems for electricity and natural gas are owned, operated and developed by Energinet, an independent public enterprise owned by the state. Since its establishment in 2005, Energinet's activities have expanded considerably to include gas storage and distribution and they will further expand in future to include off-shore gas transportation.
Until recently, Energinet was subject to an economic break-even principle, which required its yearly revenue to correspond to its yearly costs. On 8 May 2018 the government made a new political agreement with a broad number of political parties concerning Energinet's future economic regulation, which means that it will become subject to a revenue framework. With the new agreement, Denmark will follow the same regulatory tendencies seen in other northern and western European countries.
Under the new agreement, Energinet's charges to consumers and businesses will be capped and it will also be subject to efficiency requirements. The purpose of the new regulation is to:
The new economic regulation will feature revenue and investment frameworks. The revenue framework will consist of cost and return of interest frames. The cost frame will be based on Energinet's actual cost and expected cost development. The Danish Energy Regulatory Authority (DERA) will set a risk-adjusted return of investment, which will be included in the revenue framework. Further, DERA will set an efficiency requirement for Energinet. The revenue framework's purpose is to incentivise Energinet to run an efficient operation and make necessary investments.
DERA will set the revenue framework for multiple years and only pre-defined adjustments will be made in the regulation period. The aim is to support the predictability of tariff development and secure a focus on long-term investments.
Energinet will continue to make socioeconomic investments based on the needs of the electricity and natural gas transmission systems. An investment framework will be established for the necessary socioeconomic investment, which will constitute the economic framework for Energinet's investments. This investment framework will be based on long-term development plans, which the regulatory authorities must approve. If the investment framework results in additional costs, which cannot be held within the total revenue framework, the additional cost can be added as a supplement to the revenue framework. The investment framework means that when developing the electricity and natural gas transmission systems, Energinet must choose the best value option and consider the market risk of its investment decisions.
The agreement has generally been well received, with the Danish Energy Association describing it as a "flexible and modern regulation" that "will benefit consumers".
For further information on this topic please contact Nicolaj Kleist at Bruun & Hjejle by telephone (+45 33 34 50 00) or email (firstname.lastname@example.org). The Bruun & Hjejle website can be accessed at www.bruunhjejle.com.
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