On 1 January 2025, the Luxembourg Regulatory Institute (Institut luxembourgeois de Régulation – ILR) and network operators will introduce a new tariff structure onto the electricity market. The objective? To respond to changes in network use within the context of the energy transition. How? By offering a fairer tariff structure that will ultimately encourage consumers to be more flexible in their network use and to make better use of existing networks.
The electrification of our society has been accompanied by an increase in energy flows on our networks. That’s why network operators closely monitor the state of the networks and their expansion, so that they can meet current and future electricity needs. The increase in flows is perfectly manageable at the moment, due to the excellent quality of the country’s networks. In the future, however, it is likely that there will need to be an increase in network capacity. This is due, in particular, to the increase in simultaneous use.
As well as expanding the networks, operators wanted to find an immediate, fair and complementary solution to this change in network use. In practical terms, they are now focusing on cost reflectivity, applicable to the portion of the final electricity price that relates to network use. And so, on 1 January 2025, the Luxembourg Regulatory Institute (Institut luxembourgeois de Régulation – ILR) and network operators will introduce a new tariff structure to the low-voltage electricity market (households, shops, etc.). For the time being, this change will have little impact on the vast majority of consumers, especially as the main variable is always the price of electricity itself, not the network use tariff.
In the medium term, however, this change will call for more efficient network use, better use of existing networks as a whole and, lastly, the maintenance of tariff stability.
Firstly, it is important to distinguish between the price of electricity and the electricity network use tariff which, together with taxes, make up the final price paid by the consumer. It is the network use tariff which is affected by the change in tariff structure. The price of electricity itself is the main variable in the final price paid by consumers. It is not affected by this tariff change and is independent of it.
In the first instance, network power flows are increasing now, and will increase further in the future, as is simultaneous use (oven, washing machine, electric vehicle charging, heat pump, etc.), also increasing the risk of peak loads or even network congestion. In the second instance, the current system is unfair, because it does not reflect actual network use costs. And so now, and even more so in the future, some users should pay less, and others more, for their network use, depending on their consumption behaviour. That's why network operators wanted to look to the future and find a fair and complementary solution to this change in network use, as well as continuing with ongoing network expansion.
Applicable from 1 January 2025, the new network use tariff simply places greater emphasis on the concept of power. Please note that power is expressed in watts (W) or, more commonly, in kilowatts (kW). It is an instantaneous value representing the intensity of the action, comparable to the speed of a vehicle or the flow of a river (more info at www.myilr.lu). In future, the impact of each user, and each use, will be reflected in the tariffs applied and, therefore, in the costs billed for network use. A limited number of reference power levels, calibrated in line with the most common uses and profiles, will be automatically allocated to users on the basis of their consumption history, and they will then be billed on this basis.
The transition will be very smooth, and the change will have little impact on the average consumer or on the vast majority of consumers. Only the billing arrangements will change, with greater emphasis on the concept of power. For the vast majority of people, no action will need to be taken either before, or after, the change. In future, all consumers will pay a fair price for their network use, including those whose consumption and network use patterns generate peak loads that then have to be absorbed by the network. The current tariff does not yet reflect the actual costs of these users. Finally, it should be pointed out that the price of electricity (not the network use tariff) is the main variable in the final price billed to the consumer.
From January 2025, each consumer’s power level will be shown on their bill. Ahead of application, these power levels will initially be allocated on the basis of consumption history, with the aim of identifying the optimal category from a financial perspective. Once applied, the categorisation will be checked on a monthly basis by an automated mechanism. In some rather exceptional cases, a customer’s request to change categories may be justified, particularly where there have been significant changes in consumption behaviour, such as when installing an electric vehicle charging point or a heat pump.
All network users, regardless of their reference power level, can contribute to more efficient network use, make better use of the existing networks as a whole and help maintain tariff stability. Here are two good tips: be flexible in your consumption by extending it over time and by limiting simultaneous use.
On 1 January 2025, the Luxembourg Regulatory Institute (Institut luxembourgeois de Régulation – ILR) and network operators will introduce a new tariff structure onto the electricity market. The objective? To respond to changes in network use within the context of the energy transition. How? By offering a fairer tariff structure that will ultimately encourage consumers to be more flexible in their network use and to make better use of existing networks.
The context: the electrification of our society and the increase in flows
It is clear that the electrification of our society is resulting in increased energy flows. While this is still quite manageable due, in particular, to the excellent quality of the country’s networks, it could rise even higher in the future. In order to stem this rise, and before having to possibly increase network capacity, we need to find a complementary solution to limit the peak loads that can be caused by simultaneous use.
Infrastructure: the importance of the networks and their operators
At the core of the electricity market, network operators are responsible for transporting electricity, while at the same time ensuring that there is a balance between production and consumption. On this basis, it is important to differentiate between the price of electricity itself and the electricity network use tariff which, together with taxes, make up the final price paid by the consumer.
The issue: the future risks posed by simultaneous use
In the future, simultaneous use could become more common, for example, when an electric car is charging or when a sauna is switched on while the washing machine, oven and hob are running in the same household, or in a number of households in the same street. This simultaneous use could lead to peak loads or even congestion if anticipatory measures are not taken. In addition to expanding the networks, the structure of future network use tariffs must, therefore, be adapted today to meet the current and future constraints of networks whose capacity is a shared resource.
The solution: act today to avoid paying more tomorrow
As a result, the new network use tariff will place greater emphasis on the concept of power. Please note, power is expressed in watts (W) or, more commonly, in kilowatts (kW). It is an instantaneous value representing the intensity of the action, comparable to the speed of a vehicle or the flow of a river. Users will be offered a limited number of reference power levels, calibrated for the most common uses and profiles. The power assigned will not be used as a maximum value, but rather as a reference value for its level of use. In other words, regularly exceeding the assigned subscription level is not an issue. The additional volume of energy will then simply be billed at a higher rate, as it will be up to the network to absorb this difference.
The outcome: paying the right price for network use
Ahead of application on 1 January 2025, consumers will be allocated power levels based on their consumption history. This process will identify an optimal category for each customer from a financial perspective. At the moment, consumers who generate peak loads, through their consumption behaviour and network use, are at an advantage. In future, all consumers will pay the right price, due to a fairer tariff structure that takes account of consumption patterns.
Please note, however, that the price of electricity is the main variable in the final price, with an impact that may be much greater than the change brought about by the new tariff structure. As a result, the vast majority of consumers who are already adopting energy transition behaviours will not feel the impact.
