Pricing principles To ensure reliable and fair heat prices, some principles should be followed regarding transparency, discrimination, cross-sub- sidizing, and investment allocation. Transparent Heat prices must be transparent and comprehensible for con- sumers, which means the payment must reflect a cost that can be found in budgets and accounting reports. If, for example, prices are based on budgets, the district heating company should publish prices for all consumer groups on the website or send them to customers by mail/letter. Non-discriminating Prices must be non-discriminating, which means payment for consumers having the same capacity demand and annual de- mand profile should be the same. If this principle is followed, it, for example, should not be possible to charge different prices between consumers depending on distances from the net- work (Periodic payments). Normal heat network consumers have a heat demand profile related to outdoor temperature and the use of hot tap water because most district heating consumption is for heating buildings and hot water. It is non-discriminating if this consumer group has the same payment for the same capacity and delivery. For consumers using the heat for different purposes having a capacity and profile not related to outdoor temperature like industry (processes), paint shops, swimming pools, churches, etc., it would be discriminating if these consumer groups are not identified separately and have own pricing according to the cross-subsidization principles. When it comes to prices for connecting consumers, the price can be dependent on actual connecting costs, a standard con- nection fee, a price per meter branch pipe, or a combination of the last two (One-off payments). Cross-subsidization Heat prices must be cost-reflective, which is when each individual heating consumer partly pays the costs inflicted on the district heating company by the consumer’s connection to the network and presence as a consumer and partly the costs associated with heat supply.
Investment allocation If investments are paid too fast by consumers compared to the lifetime of the equipment, early consumption can subsidize late consumption. This can also be an issue if heat network companies (for flexibility, supply of security, and price security reasons) invest in more complementary heat source capacity than necessary. Capacity that gives the choice to choose the cheapest heat sources and to store heat produced when prices are low and used when prices are high can be beneficial for heat network companies. Such capacity choices deliver low heat prices over time, but if a loan is paid too fast and depreciation is too fast compared to equipment lifetime, consumer prices momentarily can get very high. If extra heat source capacity, for example, is established for flexibility reasons, the average equipment lifetime will increase, and depreciation time should follow this. If the equipment is not used much, though, the lifetime cannot be expected to be forever. Then, it may be suitable to set a maximum depreciation time of, for example, 30-40 years, but without any requirements on linear depreciation. Impact on tariffs The pricing principles mean that the tariff system must be con- structed in a way that ensures the following: The fixed costs of the district heating company are covered by fixed fees, and variable costs are covered by consump- tion-based fees.
The costs are covered by income from the tariff elements to which they can naturally be attributed.
Each individual consumer pays the share of costs required for its own heat supply so that no consumer will benefit financially at the expense of others – different consumer groups may be established if demand profiles differ. A specific heat source delivery cannot be allocated to a specific consumer, except when third-party access where supply and consumption are by the same company/ person and at the same time is a part of regulation.
Depreciations should follow the lifetime of equipment, and it should be possible to adjust the depreciation time if the
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