As part of the efforts to make the Danish energy regulatory framework accommodating for Power-to-X projects, a draft bill has been presented to the Danish Parliament, proposing to allow the establishment of direct electricity supply lines, thereby reversing the current administrative practice of the Danish Energy Agency ("DEA"). This newsletter takes you through the proposed new rules.

Background

The Danish electricity grid is based on a collective approach where both production facilities and offtakers have been connected to either the collective distribution or transmission grids. The approach has proved successful in expanding and enhancing the Danish electricity grid in areas where the transmission system operator or the distribution system operators ("DSO") may not necessarily have an economic incentive to do so.

The collective approach has entailed that the DEA, with only a few exceptions, has so far not permitted the establishment of direct electricity supply lines from the site of the electricity producing facility, e.g. an onshore wind farm, to the site of consumption, e.g. a factory or data centre requiring large amounts of electricity to operate, thus bypassing the collective grid. Instead, production facilities are currently required to connect to the grid and feed in their entire production, which can then be offtaken at the site of consumption by the end-customer. Only if the DSO has declined to connect the offtaker to the grid can direct electricity supply lines be established.

Green transition and Power-to-X

To promote the green transition, including by accommodating large-scale Power-to-X projects and an anticipated sharp increase in electricity production and consumption, a vast majority of political parties in the Danish Parliament in March 2022 concluded a political agreement on Power-to-X (available in Danish via this link), which included, inter alia, a political agreement to allow the establishment of direct electricity supply lines, and the Minister for Climate, Energy and Utilities therefore presented, on 8 February 2023, a draft bill to the Danish Parliament in order to implement this in the Danish Electricity Supply Act (the draft bill is available in Danish via this link).

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Situation today: Production facility supplies the offtaker by feeding electricity into the grid while the offtaker simultaneously takes out electricity at the site of consumption. Direct line: The production facility can supply the offtaker directly at the site of consumption. Excess demand from the consumption facility can be supplied from the grid.

Key highlights from the draft bill include:

  • Establishing a direct electricity supply line will be subject to approval from the DEA.
  • Allowing direct electricity supply lines both onshore and offshore (e.g. in connection with energy islands)
  • One production facility may be allowed to supply up to four different consumption facilities (irrespective of ownership). However, the DEA can decline the establishment if the direct electricity supply line in effect functions as a collective grid.
  • The electricity supplied via the direct supply line will be subject to taxes, duties and VAT.
  • Granting of approvals will take into consideration whether the production facility and consumption facility are located in close proximity.
  • The electricity production facility and offtaker must connect on a 10 kV voltage level or above.

In late September 2022, the DEA further sent a draft executive order on the terms for direct electricity supply lines in public consultation (available in Danish here).

In the draft executive order, the DEA has outlined a number of important items:

Item

DEA Proposal
Ownership
  • The DEA intends to restrict the ownership of the direct electricity supply line to either (i) the owner of the electricity production facility or (ii) the owner of the consumption facility.
  • Third-party ownership to direct electricity supply lines will not be allowed.
Approvals
  • Establishment of a direct electricity supply line will require approval from the DEA.
  • The DEA may set certain conditions in the approval.
Collective grid
  • The production facility and the offtake site will be allowed to connect to the collective grid.
  • This means that excess production from the production facility can be fed into the collective grid and the offtake site can take electricity from the grid in the event that the production from the electricity producing facility does not fully cover the consumption need.
Voltage levels
  • The electricity production facility would be required to connect to the collective grid on at least a 10 kV voltage level if it did not establish a direct line.
More offtakers or production facilities
  • The coupling of one or more production facilities to one or more offtake sites will be allowed only if the DEA determines it does not take the form of a collective grid.
Only for new production facilities
  • The DEA will only allow establishment of direct electricity supply lines for new electricity production facilities, i.e. facilities that do not already have a grid connection agreement. Reinvestment in an existing electricity production facility will not result in the facility being regarded as new.
Distance requirement
  • The DEA intends to impose as a requirement that the sum of the length of the electricity supply line and the grid established in connection with the supply line to be established from the production facility to the site of consumption does not exceed the length to the point in the collective grid where the electricity production facility would have otherwise connected (measured as a straight line between the two points).
  • The DEA can grant an exemption if certain individual circumstances apply.
Offshore production facilities
  • Permission can be granted for a direct supply line from an offshore production facility to an onshore consumption facility.

The DEA has not yet published the final version of the executive order, but it is expected that it will be issued once the draft bill has been implemented into law.

Originally published by 21 February, 2023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.