Parliament is pushing through a bill that will introduce a 90% discount for large power consumers on their transport and system services tariffs. The measure is a response to the German transport tariff discounts for large industries. The bill is expected to come into force on January 1 2014.

The measure involves an amendment to the Electricity Act 1998. Large-scale consumers (at least 50 gigawatt hours (GWh) a year), with at least 65% plant operationality (ie, 5,700 hours minimum per year) will be entitled to a correction of up to 90% on their annual electricity offtake volumes. The actual applicable correction percentage will be calculated using the following formula:

Volume correction (%) = (plant operationality – 65%)/(85%-65%)*(offtake – 50GWh)/(250GWh-50GWh)*100

Caps are applicable on plant operationality (85%) and annual offtake (250 GWh). Plant operationality is calculated by extrapolating the off-peak volume (kilowatt hours) drawn from the grid in the previous year, dividing it by the maximum capacity (kilowatts) drawn from the grid in that year – resulting in a number of operational hours – and dividing the outcome by 8,760 (the number of hours in a calendar year), the total outcome of which is multiplied by 100. Off-peak volumes are extrapolated to full year volumes so that consumers are still encouraged to dispatch during peak hours, which also helps grid stability. The bill provides for deviant calculation inputs for consumers that use residual gasses or residual heat to generate electricity.

The bill further provides that the costs of system services are to be included in the transport tariffs, as a result of which the separate system services tariffs will come to an end. System services are services rendered by the transmission system operator, TenneT, in the interest of maintaining a well-functioning power transmission system and include the arranging of back-up and dispatch capacity, black-start facilities and other system services. As these system services costs are to be included in the transport tariffs, eligible large consumers will also enjoy the discount on system services charges.

The justification given for the discount is that eligible end users contribute significantly to the stability of the grid. Large-scale users with a flat consumption pattern provide for a stable and significant volume that helps to absorb production fluctuations and offtake fluctuations of other users, in particular during off-peak hours. Furthermore, the flat consumption pattern allows for a relatively efficient use of grid capacity, as there are less peaks that may lead to grid congestion and cause grid expansions to be called for. The discount percentage aims to correspond with this contribution to grid stability and is calculated using the two factors that contribute to grid stability: consumption pattern (minimum 65% plant operationality) and volume.

It is estimated that the measure will be applicable to between 30 and 35 consumers and that the average volume correction for the 10 largest users will amount to 55%. The measure will lead to an estimated €21 million tariff discount. Obviously, these costs will be socialised over all other Dutch consumers.

In Germany, a discount system of 80%, 85% or 90% is applicable to consumers using more than 10GWh. This discount system has replaced the former German total tariff remission for large consumers that has been both the subject of a formal state aid procedure by the European Commission and ruled to be against the principles of non-discrimination and cost-recovery by a German court The (former and) existing German discount on transport tariffs has led to discussions in Parliament on the inequality of costs that Dutch energy-intensive industries – in particular, aluminium smelter Aldel – are confronted with in comparison to their German competitors. (for further details please see "Netherlands questions German tariff exemptions for large industrial users"). The bill aims to bridge that inequality. According to the minister, the volume correction will not qualify as state aid. However, in its letter of November 28 2013, the Dutch competition authority advised on the applicability of the bill and noted that the explanatory memorandum did not substantiate quantitatively the relation between the usage profile of the energy intensive industry and the limitation of network costs. The competition authority advised that its concerns on the compatibility of the bill with state aid rules have not been removed. The minister has indicated that in the event that it would qualify as state aid, the Netherlands would at least be on a level playing field with Germany.

The bill passed the second chamber of Parliament on December 5 2013 and is now pending before the first chamber. The minister had already sent a letter to the first chamber on November 19 2013 asking for a quick reading of the bill in view of the Aldel situation. On December 10 2013 the first chamber obliged by indicating that it has no questions or remarks with respect to the bill, which is remarkable in view of its character of 'chambre de reflection' and the remarks made by the competition authority. As a result the will be adopted in time and brought into force on January 1 2014.

For further information on this topic please contact Roland de Vlam at Loyens & Loeff NV by telephone (+31 20 578 5785), fax (+31 20 578 5800) or email (roland.de.vlam@loyensloeff.com). The Loyens & Loeff website can be accessed at www.loyensloeff.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.