The wait is nearly over, we are expecting Ofgem to publish it’s minded-to decision on their Access and Forward-Looking Charges Significant Code Review (SCR) within weeks.

Regen have been following the process since the SCR’s inception in 2017 and have been attempting to navigate the eye-watering complexity of the various codes and methodologies that determine who pays, and how people pay, for electricity networks.

What everyone needs to know is that the SCR proposes some very significant changes, which could have big implications to the way electricity network customers pay for the networks. It could be an important step forward in supporting the decarbonisation of our energy system. But equally it might not.

Our view is that the minded-to decision could go one of two ways. Ofgem may announce tentative changes to the existing system at distribution level that could see big winners and losers (the losers are probably distributed renewable energy). But we could also see changes that will shake up the Distribution Network Operators’ (DNOs) approach to network investment and help herald in a new era of electrification and new renewable generation. No prizes for where our hopes are pinned.

 

So what are the big decisions to look out for?

  1. The locational DUoS charges

Ofgem have strongly indicated that they would like to see the licence areas essentially fragment into several zones. These zones will have different network charges that reflect local costs, which are likely to vary between rural and urban areas, or those that are demand-dominated or generation-dominated. This, in theory, could change DUoS from a credit to a charge for distributed generation in generation-dominated areas, adding another blow to subsidy-free business models.

How many zones there are, how they are defined, and how material these new locational charges will be to customers, are decisions we keenly await.

  1. The cost of new connections to the distribution network

At present, distribution connections need to contribute towards the cost of reinforcement where their project triggers a reinforcement need. With the distribution network effectively ‘full up’ in many areas, this is putting a brake on new developments, demand and generation alike...

Early indications have suggested that Ofgem are looking to make the connection boundary at distribution level ‘shallower’, bringing it into line with transmission connections, which should mean connections are cheaper upfront. Ofgem are also linking this explicitly to a locational DUoS to retain a locational signal.  A fully shallow boundary would entirely remove reinforcement costs. This means that new connections, particularly in constrained areas, may see important cost reductions in development, particularly for the larger projects. Our hope is that this goes some way to unlocking key areas for renewable generation that have great resource but have poor local network.  The question is, how shallow will they go?

  1. A new flexible future.

We are expecting decisions around requiring DNOs to provide more choice of flexible connections to new customers. However, unlike Active Network Management, these will need to provide customers with a contractual constraint ‘ceiling’. This would start to shift the constraint risk from new customers to DNOs. We don’t know how broad this requirement will be, but it could support both cheaper new connections and new flexibility markets as DNOs seek to manage their contractual risks.

 

This is only a snapshot of some of the bigger changes. We are anticipating further important decisions will be made on the future of the remaining Triad, transmission charges for distributed generation (which could thump distribution-connected generators in Scotland), and perhaps some indication of who is going to be paying for the increasing costs of balancing our energy system.

We will be running an event on 12 November to discuss some of the implications and how to respond to the consultation. Find out more here.

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