Policy & regulations

Taxes and tariffs must support the green transition: The development of new energy policies and efficiency regulation schemes is becoming more and more important for successfully integrated the increasing amount of variable energy resources and saving CO2. CITIES task force group (Danfoss, Teknologisk Institut, Grundfos, Ørsted, Grøn Energi, Tomorrow, Aalborg Universitet & DTU) has worked with the barriers in the regulatory framework like tax legislation and regulation of infrastructures.

The main recommendations are:

  • Taxes and tariffs must support flexibility
  • The tax should incentives the use of green energy
  • The tariff must depend on the load in the network
  • Geographical and thematic test zones to ensure the pricing system works

We are looking into a future with increased electrification that places great demands on our electricity grid. We, therefore, need to provide incentives for both consumption and production, which support the flexibility more than today and that enables us to develop and operate a green energy system for as little money as possible.

Variable taxes and tariffs should support flexibility
Taxes have typically been a balance between a tax revenue for the state and payment for an externality such as environmental impact and pollution. Tariffs are payment for transport in infrastructure, and electricity tariffs are under discussion in these years. Both are means to an end; they can be defined and arranged in different ways, but there are freedoms as to what they should support.

We need to support a smart, green energy system that is based to a much greater extent than before on decentralized production and is integrated to a much greater extent across technologies. Therefore, both variable taxes and tariffs should provide incentives for both consumption, production and innovation, which better support the flexibility that enables us to operate a green energy system for as little money as possible. This applies to investments in infrastructure, capacity, energy and digitization. We do this, among other things, by fees and tariffs that follow the physics more closely.

The tax should incentives the use of green energy
For taxes, this means that a large part of the tax must follow the externalities, and the most important thing in this context is CO2. In addition, taxes are the right incentive to save energy. Another important point is that increased tax revenue must be returned to companies in a way that accelerates innovation in and implementation of flexible and energy-efficient low-emission technologies.
In this way, we can support the green transition in Denmark and create the next generation of sustainable winning companies that can scale their solutions globally.

The tariff must depend on the load in the grid
For tariff design CITIES task force recommend that tariffs follow the physics in the grid. Therefore, the tariff must depend on the load in the network.
The ultimate right solution, in the end, is to make dynamic tariffs determined by the load now and here. Until we are ready for that, it is important to focus on tariffs that support this green transition, and therefore reward players who are flexible and therefore do not give rise to increased investment. Examples of flexible consumption are both electric cars that can control charging, and especially large electric boilers and heat pumps in district heating systems. But there is a big difference in the duration of flexibility. CITIES task force recommend that the flexibility also should be reflected in the pricing of a tariff system.

Geographical and thematic test zones 
To test and ensure the setup of the pricing system CITIES task force recommend using larger and smaller geographical test zones with different technological set-ups and price models with flexible tariffs and taxes and in relation to cities and buildings that are characteristic of Danish society.

See the recommendations and videos below.

Suggestions for new energy taxes and net tariffs

At CITIES final conference November 9, 2020, CITIEs Task Force group represented by Nina Detlefsen, Chief Analyst at Green Energy – Danish District Heating Association and Jan Hvidbjerg, Lead Analyst at Ørsted talked about the work with energy taxes and net tariffs. A well-designed price signal for end users will make them change their behavior, just as energy taxes should be linked to the current local load in the electricity grid.

The Low-carbon transition: Challenges, status and possibilities

From CITIES – Centre for IT-Intelligent Energy Systems – final conference November 9, 2020: KEYNOTE from Olivier Corradi, CEO at Tomorrow:  If we don’t do anything about the CO2-emission, we have nowadays, we will need a Corona lockdown period all over the world as we saw in spring 2020 to keep the temperature rise at 2 degrees as in the Paris Agreement. So we need new ways of doing things – hereunder computing the demand and production in relation to when the energy comes from renewable sources, Olivier says.


Market-Based Mechanisms for Mobilizing Electric Demand Flexibility

At CITIES final conference Shmuel Oren, Professor, University of Berkeley, California, US talked about market-based mechanisms for mobilizing electric demand flexibility​and with slides from Niclas Brok, PhD student, DTU Compute. 


Achievements and recommendations

Findings in CITIES – now we wait for the politicians: Possible benefits from digitalization: Up to 800 mill dkr annually in Denmark by data-driven temperature optimization (tons of CO2 savings), 10-30 pct savings by predictive control of heat pumps, 5-15 pct savings by integrating forecasts in smart house controllers, 10-40 pct improvements of electricity and heat load forecasts, up to 10 pct savings by optimal operations of CHP and DH plants, 5-12 pct savings by smart wastewater treatment, 10-20 pct savings on cooling for supermarkets, up to 90 pct savings on cooling for data centres. We could possibly be fossil-free tomorrow. 



Demo projects

Energy Supply Modelling in cities: A Case Study of Sønderborg Municipality

The demonstration project has developed a model and evaluated scenarios for Sønderborg’s energy system in 2029 in order to identify ways of increasing the efficiency and integration of the system while minimizing CO2 emissions and socioeconomic costs.

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Qualitative investigation of the impact of energy communities on distribution grids

The demo project has made a simple analysis of the impact of energy communities on three different grid layouts: urban, suburban and rural areas of Denmark to estimate consequences of different setups of energy communities on distribution grids.

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