In this blog, Poppy Maltby, head of cities and regions at Regen, looks at the impacts of Ofgem’s recent and proposed changes to how customers pay for our electricity networks.
Moving electricity from where it is generated to where it is used is fundamental to our energy system. After decades of incremental change, the UK’s electricity infrastructure and systems now need to develop rapidly to support further decentralised generation as well as the increased electrification of transport and heat.
In the last few years Ofgem has undertaken a series of reviews of how customers pay for our electricity networks, which account for around a third of our electricity bills.
This is important because how and what people pay to connect to and use the networks sends critical signals to investors and will affect how rapidly the network infrastructure can update and evolve to support net zero.
Regen has been working with SP Energy Networks to understand the impacts of recent and proposed changes to how much we pay for our distribution and transmission network, and associated implications for DNOs. This research is summarised here.
A key part of Ofgem’s review is that electricity bills could become more reflective of the costs of running and improving the electricity network where you live or are connected. Your bill may also vary depending on the amount of generation and demand connected locally.
The report launched today details that we expect both positives and negatives for decarbonisation, but how these impact different locations will vary, and be very project specific.
For some larger customers it looks like it will become cheaper to connect at distribution, particularly where reinforcement costs had been a barrier. In other areas the total network bill could rise, making new connections harder.
Scotland could face particularly high costs under the new rules. Given that virtually the whole pipeline of onshore wind projects in the UK are in Scotland (there are over 5GW of ‘shovel ready’ projects with planning permission) as well as more than half of battery storage projects (over 6GWs of projects with planning), this could be a significant challenge to achieving the high renewables electricity system set out in the government’s recent Energy White Paper.
Overall, it is still difficult to judge whether the outcomes will be positive or negative for decarbonisation and renewables in particular. For that we await the full ‘minded-to’ decision from Ofgem which is expected later this year.
However, what is clear, is firstly that these network charging changes are going to require further investment by DNOs in physical assets, network monitoring as well as processes and capability to support net zero, new connections and flexibility.
And, secondly, that these new national methodologies could have significant impacts on local and regional aspirations for growth and decarbonisation. This begs the important question about whether, and how, devolved administrations, local and regional government should have more say in how their local networks develop.
In our 2019 paper, which was sponsored by SP Energy Networks, ‘Energy networks for the future‘, Regen called for formal regional energy governance bodies to guide these processes and investment. We believe these charging reviews highlight that this need is becoming increasingly important.