Balancing the Costs of Energy: Transmission Tariffs and the Princess Elisabeth Island

Last week, headlines focused on the rising costs of the Princess Elisabeth Island and the potential knock-on effects on electricity bills. While concerns are understandable, the debate often misses the nuances of how electricity costs are structured for different consumer groups.

Understanding Electricity Bills: Roads, Highways, and Toll Booths

An electricity bill in Belgium is made up of several key components. The commodity represents the electricity itself, akin to the fuel for your journey. Distribution refers to the regional roads that deliver electricity to homes and businesses, with associated upkeep costs. Transmission can be compared to highways carrying electricity across the country, funded through tolls, or in this case, transmission tariffs. Finally, taxes and levies function like additional charges on the kilometers covered, thereby supporting renewable energy and government programmes.

For households, distribution costs dominate due to their reliance on local grids. Industrial consumers, however, often bypass these costs by connecting directly to the transmission grid. This leads to significant differences in how costs are allocated between consumer types.

Transmission Costs: Who Feels the Pressure?

Belgium’s transmission operator, as a regulated monopoly, recovers infrastructure costs such as those of the Princess Elisabeth Island through transmission tariffs. While there is concern about rising project costs, it is important to understand the relative impact on electricity bills. For households, transmission costs make up only 3% of their total bill, with distribution and commodity prices playing a much larger role. For industrial users, transmission costs represent a larger share of their bill, making them more sensitive to increases. To provide perspective, we explored a hypothetical doubling of transmission tariffs. For households, the total bill would rise by 2.9%. Small and medium enterprises (SMEs) would experience an increase of 4.2%, while industrial consumers would see a more noticeable jump of 6.5%. Even under these extreme assumptions, the impact on households remains modest. However, industrial consumers feel the change more acutely due to the higher share of transmission costs in their total bill.

Figure 1: Comparison of the electricity bills of different consumers. Data from VREG, CREG, BRUGEL

While much of the focus has been on transmission tariffs, the bigger picture tells a different story. For households, rising distribution tariffs or commodity prices are far greater concerns. Industrial consumers, on the other hand, are highly sensitive to changes in commodity prices, as these constitute the bulk of their energy costs.

Projects like the Princess Elisabeth Island could play a key role in stabilising commodity prices by facilitating access to renewable energy and enhancing grid reliability. For industrial users, the benefit of stable and predictable electricity costs may outweigh the relatively modest increase in transmission tariffs.

Public scrutiny of large-scale projects is necessary, but it is important to consider the long-term value these investments provide. For households, efforts should focus on managing distribution and commodity costs, while industrial consumers should assess the trade-off between slightly higher transmission costs and the potential for more stable energy prices. By maintaining this broader perspective, discussions around energy infrastructure projects can remain balanced and constructive.