Executive summary
A core pillar of decarbonisation is the accelerated electrification of end-uses alongside the deployment of clean and renewable generation, which requires European electricity grids to become more flexible and resilient. In parallel, affordability has been placed at the top of the European Commission’s agenda in the Affordable Energy Action Plan[1]. Network tariffs contribute to ensuring the affordability of Europe’s energy systems. TSO and DSO network tariffs represent around 20-22%[2] on average of household electricity bills in the EU, a similar amount to taxes, fees, and levies, with the energy supply component comprising the rest. Increased affordability therefore requires greater system-wide efficiency and a reduction in taxes and levies to make electricity prices more favourable compared to fossil fuel energy sources.
This paper aims to show how tariff design elements can increase efficiency and transparency. Network tariffs are a national competence and are set or approved by national regulatory authorities (NRAs), thus they should not be harmonised on EU level but rather tailored to local specificities. The guiding principles for tariffs should consistently support transparency and cost‑reflectivity, while also maintaining clear and understandable structures for consumers. Efficiency, on the other hand, should be managed in a system-wide manner.
With regard to tariff design, reducing overall grid costs requires limiting peak load consumption, notably by introducing or strengthening a capacity element in network tariffs to reflect the cost structure of DSOs, which mainly consists of fixed costs. Static Time-of-Use (ToU) network tariffs can provide predictable price signals that encourage users to shift demand from peak periods, improving network efficiency and costs, which can be complemented by other flexibility tools such as local flexibility markets, rules-based mechanisms or flexible connection agreements (FCAs). In addition, locational signals in connection charges help guide new generation, demand and flexibility resources towards locations which are more optimal for the cost efficiency of grids. The application of injection charges varies across Europe, and if applied, must be fair, transparent and set in advance to ensure investment certainty for generators. Special network tariffs[3] and reductions should be avoided as they can lead to cross-subsidisation and market distortion.
Electricity networks are primarily financed by tariffs, complemented by public funding. National regulators should incentivize the use of funding by recognising additional OPEX costs generated by funded investments and the partial depreciation of funded assets). EU funds – mirroring the significance of the investment ahead – must be specifically allocated for DSO investments, and access to funding programs should be simplified by reducing administrative burdens.
National regulation must incentivise DSOs to improve efficiency through digitalisation, smartification and advanced grid technologies that enable dynamic supply contracts, flexibility, and increased efficiency in planning and operation. Beyond funding mechanisms, to make such investments, regulation should treat OPEX and CAPEX solutions equally by sharing efficiency gains with consumers under reasonable benefit-based incentive models.
[1] European Commission (COM/2025/79), Action Plan for affordable energy
[2] European Commission (COM/2025/79), Action Plan for affordable energy
[3] With the exception of transmission charging set out in EU Regulation 838/2010 (annex part B) on on laying down guidelines relating to the inter-transmission system operator compensation mechanism and a common regulatory approach to transmission charging