Electricity bills are back in the spotlight, but what actually shapes them? Beyond wholesale prices, one of least known levers sits in how we design network tariffs. As Europe accelerates electrification, getting this right will be key to keeping costs down while powering the transition.
In response to the European Commission’s Recommendation on future-proof network tariffs, Eurelectric’s latest position paper sets out how smarter distribution tariff design can support affordability, efficiency and electrification – without undermining investment signals.
Why network tariffs matter more than ever
Network tariffs are a cornerstone of Europe’s electricity system. Put simply, they are the charges consumers pay to use the electricity grid – covering the costs of building, maintaining and operating the networks that bring power to homes and businesses. Today, transmission and distribution tariffs account for around 20–22% of household electricity bills and around 11–12% for industry across the EU – roughly equal to taxes and levies.
At the same time, the system is undergoing a profound transformation. Electrification is accelerating, renewables are scaling up, and demand patterns are becoming more dynamic. This comes with a significant investment challenge: around €730 billion is needed for distribution and €477 billion for transmission grids by 2040, with distribution investments alone expected to double to €55–67 billion annually by 2050.
With around 70% of renewables already connected at distribution level, grids are becoming more decentralised and more complex to manage. Against this backdrop, well-designed network tariffs are essential to ensure costs remain manageable while enabling the transition.
Designing tariffs for efficiency and electrification
Eurelectric’s paper makes a clear case: tariff design must reflect how the system actually works. Today, over 90% of grid costs are fixed, yet many tariffs still rely heavily on volumetric components.
To address this mismatch, Eurelectric supports a shift towards capacity-based elements, combined with static Time-of-Use (ToU) tariffs.
In practice, this means part of the bill reflects the maximum capacity a user requires from the grid (rather than just how much electricity they consume), while ToU tariffs introduce different price levels depending on the time of day – encouraging users to shift consumption away from peak periods when the grid is under most pressure. These predictable signals help smooth demand, reduce congestion and ultimately lower system costs.
Importantly, these tariffs should remain simple and transparent, enabling consumers to respond without unnecessary complexity. While dynamic pricing may have a role in the energy component, overly complex dynamic network tariffs risk confusion and lead to inefficiency.
Unlocking flexibility without distortion
Flexibility will be key to managing Europe’s future power system but tariffs must enable it in the right way. Eurelectric highlights that static Time-of-Use (ToU) tariffs should be complemented by other flexibility tools, such as local flexibility markets or flexible connection agreements (FCAs), to optimise grid usage.
At the same time, the paper warns against using special tariff regimes or reductions that can lead to cross-subsidisation and market distortions. All users – whether consumers, prosumers or new demand sources should contribute fairly to grid costs, while benefiting from improved system efficiency.
On locational signals, Eurelectric takes a balanced approach, these can play an important role in guiding investments, but are better applied through connection charges rather than ongoing network tariffs, ensuring clarity and investment certainty.
Funding the grid of the future
Electricity networks remain primarily financed through tariffs, but the scale of investment required by the energy transition calls for additional support. Eurelectric stresses the importance of targeted public funding for grids to help manage the additional investment need. Simplifying access to EU funding and reducing administrative burdens will also be critical to accelerate deployment.
At the same time, regulation must incentivise DSOs to invest efficiently through digitalisation, smart technologies and advanced grid solutions by treating OPEX and CAPEX on an equal footing.
The bigger picture
Improving affordability is not just about tariffs. With network tariffs representing only part of the final bill, Eurelectric underlines the need for a system-wide approach, including reducing taxes and levies and improving overall efficiency.
Done right, network tariff design can encourage better use of existing infrastructure, reduce system costs, and support the competitiveness of electricity versus fossil fuels unlocking electrification across transport, heating and industry.
The takeaway
Network tariffs are more than a cost component – they are a strategic lever for Europe’s energy future. By aligning tariff design with system needs through cost-reflectivity, simplicity and smart incentives Europe can ensure grids remain affordable, resilient and ready for the transition.
Read the full paper here
This week’s edition’s written by:
Erin Kalejs – Strategic Communications, Eurelectric
With technical input from:
Zsuzsa Cseko – Distribution & Market Facilitation, Eurelectric
This blog post was originally published as part of Eurelectric’s LinkedIn Friday Features. Subscribe here to stay updated and never miss an edition.
Disclaimer: This article is for communication purposes only and may not reflect Eurelectric positions. Any positions taken in this article shall not be attributable to Eurelectric’s official positioning. Official Eurelectric positions are reflected only in position papers published here.