Proposed Amendments to District Heating Price Regime

The proposed amendments include several adjustments to the current legislator framework for district heating, key amendments including amendments to the price model, opening up for fixed price agreements, the applicability of the price scheme is extended to include all district heating plants, as well as adjustment to the regulation of costs related to connection to the district heating system. 

The district heating market has significantly evolved since the original legal regulation on district heating was established in 1986. With the increasing focus on renewable energy sources, and the district heating prices being linked to a volatile electricity power market, several stakeholders have argued that the regulations have been due for an update.

NVE suggests a revised price regulation that includes a maximum price that will continue to be linked to the electricity power price, but with some adjustments to the detailed set up. The proposal aims to balance consumer protection against high prices with the need for district heating companies to maintain profitable and sustainable operations. 

In the recommended pricing model, NVE suggest that the maximum district heating price shall follow the electricity spot price in each supply area plus a fixed component determined by the regulator. The fixed component is included to reflect that, unlike electricity customers, district heating customers do not have to pay grid connection fees. NVE recommends that the fixed component is set at 0.50 NOK/kWh. NVE recommends that the direct correlation between the spot price and the district heating price should have both an upper and a lower limit. Beyond these limits, at what is referred to as the "inflection points," NVE recommends that the correlation should diminish. According to the proposal, when the spot price is higher than the upper inflection point or lower than the lower inflection point, the correlation should be set at 0.4.

NVE has examined how the proposed price regulation would have played out with hourly prices in the NO1 area over the last five years, and has found that customers would have paid slightly more for district heating in years with low spot prices, while district heating companies would have seen reduced revenues in years with very high prices. 

The current price regime does not allow for the district heating companies to charge a price exceeding the price for electricity in the same area and therefore also prevents the district heating company from entering into fixed price arrangements with their customers. NVE recommends that the legislative framework is amended in order to allow for fixed price agreements within defined time periods. 

There has been some uncertainty as to whether the existing price regime applies to district heating plants where the customers are imposed a mandatory obligation to connect to the plant, or to all plants holding a district heating concession. As NVE now recommends changes to the price regulation framework, NVE advises that the price regulation should apply to all heating facilities covered by the definition of district heating in the Energy Act.

Additionally some amendments are proposed in the regulation of costs related to connection to the district heating grid, as NVE points out that for customers with a mandatory connection obligation, it is unreasonable for them to cover the costs of long pipe stretches to the buildings. 

NVE has delivered the proposed amendments to the Ministry of Energy which will assess the proposal. If the Ministry concludes that the legislative framework is to be amended, the ministry will propose amendments to the Energy Act, which will be subject to a public consultation and finally to be decided on by the Parliament. 

Read the article in Norwegian HERE.