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international integration, these distortions may be further enhanced through the European subsidy programmes. For example, at the same time as the Danish state prevents electricity-to-heat integration through high taxes, the European Union subsidises electricity-to-electricity integration. This results in a double process of distortion between local and national integration of heat and electricity and investments in international electricity interconnectors. An efficient European energy system would need both integration measures but the ability to strike the right balance requires changes in the overall pattern of subsidy and taxation programmes across Europe. arconsunmark. com
that national distortions may result in international spill-overs as energy is traded through international interconnectors in the electricity system. Studies into individual countries thus always entail an international perspective. For example, a country study into the Danish energy taxation structure has shown significant barriers to electricity-to-heat integration (Hvelplund & Djørup 2016). In the long term, this distorting taxation policy will necessitate larger investments in international interconnectors. The investments in international interconnectors and volume of international electricity exchange thus result in a non-optimal balance between investments in local heat and electricity integration and international interconnectors. The tax barriers for heat-to-electricity integration also prevent the district heating sector from innovating itself into a new competitive position. This position should be based on development of new technologies such as, in the Danish case, fluctuating renewable energy sources, heat pumps and thermal storage units: A combination of technologies which over a period of time should replace the hitherto fossil fuel and CHP based district heating system that is constantly losing markets shares in the electricity exchange due to the competition from wind and solar power. European subsidy schemes. At present, the European infrastructural subsidy schemes are directed towards electricity- to-electricity integration only.
Electricity grid tariff schemes. Do the applied grid tariffs provide the right price signals for the long-term development?
The financing of electricity grid expansions through the tariff structure may entail dynamics that cannot sustain a long term efficient development of the energy system. The problem with the electricity tariff structures is precisely that they historically have been designed for the development of the electricity system and not the development of the energy system. For example, current expansion in the capacity to trade electricity between Scandinavia and central Europe is financed by electricity consumers through a general rise in grid tariff so all electricity consumption finances the costs of cross-border
While the national taxation schemes might not have adjusted to sustain an allocative balance between local, national and
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