Danish TSO Lowers Tariffs Despite Rising Grid Investment

in Japanese

Energinet, the Danish transmission system operator (TSO), has recently announced that its electricity tariff will decrease from 11.5 øre/kWh to 10.5 øre/kWh in 2027.¹ This is the second such decrease in as many years, down from a high of 13.5 øre/kWh in 2025. This tariff rate applies to consumers connected through distribution networks, though the tariff for large consumers connected directly to the transmission system will also decrease.^2, 3 Energinet also plans to keep tariffs stable through 2030.

Tariffs are one of the main sources of funding for TSOs, and with grid investment increasing globally to meet renewed growth in electricity demand, the expectation is that increasing investments will put upward pressure on tariffs. This trend can be observed in multiple countries where, barring government subsidies, tariffs have risen to fund new projects.^4,5 How, then, has Denmark been able to lower tariff rates?

Figure 1: Energinet electricity tariff 2020 - 2027

Electrification and Market Maturity

Energinet’s total electricity tariff is composed of two components, the system tariff and the grid tariff. Put simply, the system tariff is meant to cover Energinet’s system costs, including system services, while the grid tariff goes toward the operation and maintenance of the high-voltage electricity grid. In 2027, the system tariff will decrease to 4.9 øre/kWh, while the grid tariff will increase to 5.6 øre/kWh, reflecting rising grid operation costs. Nevertheless, the combined tariff will decrease overall. How, then, has Energinet been able to reduce the system tariff to such an extent?⁶

Three main factors help explain this reduction:

1. Lower balancing costs
2. Growth in electricity consumption
3. Increased congestion income

System balancing costs, which have long been high, are expected to fall from DKK 2.1 billion in 2025 to around DKK 1.4 billion in 2026.⁶ According to Energinet, this is due to an increase in the number of market participants. Technological advancements have allowed generators and consumers of all sizes to take part in the balancing market, increasing competition. Flexible grid assets, such as batteries and electric cars, have furthermore become ever more prominent players in the market, increasing the flexibility of the grid and lowering costs for Energinet. Balancing resources can additionally be exchanged across borders via interconnectors, allowing balancing costs to fall while improving the flexibility of the power system.

Demand growth and electrification are additional driving factors for Energinet’s revenue, as higher electricity consumption expands the volume over which tariff-funded costs can be recovered. Demand for electricity is expected to grow by around 10% in 2026 and is forecast to increase by a further 4.2% in 2027. This is partly due to electrification, of which the transport sector and district heating are two prominent examples. Electric vehicles accounted for 68.5% of all new passenger car registrations in 2025,⁷ and residential and district heating is increasingly shifting from gas-based solutions to heat pumps and electric boilers.

Figure 2: Revenue distribution 2027, total revenue: DKK 10.1 billion

Congestion Income Is Increasingly Important

A major enabler of the tariff rate reduction has been the increase in congestion income, which makes up 37% of Energinet’s expected revenue for 2027, compared with 33% in 2026 (see Figure 2).^{6, 8} Congestion arises when there is limited transfer capacity between different bidding zones, leading to a difference in prices and income for the TSOs that operate the relevant cross-border capacity.

Since this income is not ordinary commercial profit, there are regulations on how it can be used. Under current European Union (EU) law, congestion income must first be used to guarantee the availability of the allocated cross-border capacity, maintain or increase cross-zonal capacity, or compensate offshore renewable generators affected by transmission capacity restrictions. Only after provision has been made for those objectives can the income be considered by regulators when setting network tariffs, for example.⁹

What makes Denmark unique is its number of interconnections relative to its size. Energinet currently operates interconnectors to Norway, Sweden, Germany, the Netherlands and the United Kingdom (U.K.), as well as an internal interconnection between eastern and western Denmark.¹⁰ The 2021-2022 energy crisis dramatically increased European price imbalances, which allowed Energinet to accumulate a substantial balance of congestion income. This, along with the activation of the 1.4 GW connection to the U.K. in 2024,¹¹ means that Energinet has seen historically high income from interconnector congestion, as can be seen in Figure 3.¹² Energinet explicitly stated in its 2026 tariff catalogue that it would use the increase in income as a “strategic lever” for keeping tariffs low, emphasizing the importance of this income stream to its tariff design.⁶

Figure 3: Energinet annual congestion income from international interconnectors, 2020–2025

Why Lower Tariffs?

Energinet, like other TSOs, is facing unprecedented pressure to expand, modernize and secure its transmission grid to accommodate additional renewable generation and rising electricity consumption. This is reflected in the number of grid projects, 65 in 2020 and 184 in 2025, the value of those projects, DKK 13.6 billion in 2020 and DKK 96.4 billion in 2025, and a grid connection queue amounting to 60 GW¹³ for a system with a current peak load of around 7 GW.^{6, 14, 15}

Energinet’s cost distribution for 2027 (see Figure 4) shows that the percentage allocated to the transmission system (covering grid development and maintenance) is 44%, almost half of the budget. These costs include not only the laying of transmission lines and cables, but also investment in system security. The integration of non-synchronous renewable energy requires a complex control system and new approaches to maintaining system stability. IT security and IT development are also becoming an ever more important part of overall system integrity, as more functions become reliant on digital systems.¹⁶ Underlying pressure from grid expansion and security has therefore not disappeared and is only likely to increase with higher demand and progressing electrification.

Figure 4: Cost distribution 2027, Total costs: DKK 10.1 billion

Why, then, is Energinet lowering tariffs? Two main reasons are given.

First, encouraging electrification. Although the electrification rate is increasing, it is still relatively low. Electricity accounted for 21.3% of total final energy consumption in Denmark in 2025, compared to neighboring Sweden’s 36%, indicating there is room for further electrification.¹⁷

Second, stability and predictability for businesses. Large consumers, such as data centers and Power-to-X sites (mainly hydrogen production), account for a substantial share of expected demand growth. Data centers currently make up 5% of Denmark’s electricity consumption, a figure that is expected to increase.⁶ Multiple large-scale Power-to-X sites are also under development, including a 1 GW electrolyser project in Esbjerg, western Denmark, and a project in southern Denmark that is envisioned to eventually reach up to 2 GW of electrolyser capacity.^{18, 19} The ultimate scale and timing of many of these projects have yet to be determined, however, as they are contingent on, among other factors, demand for hydrogen elsewhere in the EU.⁶ It is therefore important to give these large consumers greater predictability for investment decisions.

Energinet’s experience shows that rising grid investment need not translate immediately into higher tariffs. Growth in electricity consumption, lower near-term balancing costs, and additional congestion income can offset some of the upward pressure. It is also noteworthy that Energinet aims to encourage investment by lowering and stabilizing tariffs, with the expectation that this will generate still more electricity demand. Higher utilization of transmission infrastructure can additionally help make it possible to maintain tariffs at a low level. At the same time, Energinet is continuing to make the investments necessary to integrate renewable energy production, as well as new demand centers. Strategic use of revenue streams, as well as taking measures to ease future upward pressure on tariffs by encouraging demand growth and electrification, can help restrain tariffs while investment continues, ultimately contributing to Denmark’s objective of becoming a net exporter of green energy and achieving carbon neutrality.