On 13 September we are running an event, with Ofgem, on the future of network charging. Book to attend here.
Until recently most renewable energy generators lived in blissful ignorance of the arcane complexities of how we pay for the grid, barely able to tell their TNUoS from their DUoS. It is fair to say that Regen’s paper on “Network Charging for a Flexible Future” has been one of our more specialist reads.
The announcement last year of the removal of ‘embedded benefits’ began to change all that and Ofgem’s latest proposals for a fundamental shift in charging should have everyone involved in energy sitting up and taking notice. The snappily titled consultation “Getting more out of our electricity networks by reforming access and forward-looking charging arrangements” was released this week.
This review has been triggered by the seismic shifts in our energy system. When a few wind or solar farms were connected at the end of the network National Grid and the DNOs could carry on much as before. But the barbarians have stormed the gates and are now at the heart of the energy system – renewables provide 30% of our power and rising and new technologies such as electric vehicles look set to change demand patterns. The way we pay for the network undoubtedly needs to adapt.
So, what is Ofgem proposing?
Firstly, some key terms. Your access to the grid to sell or buy energy can be ‘firm’ or ‘non firm’ (e.g. your DNO can turn you off when it has a problem). The amount you pay to connect can be “shallow” where you pay just for the assets to connect you to the network, or “deep” where you pay for the full costs including any reinforcements you trigger. Once you connect to the network you pay use of system charges for the distribution network (DUoS) and possibly for the transmission grid (TNUoS) and balancing the system (BSUoS).
1. shallow connection charges
The good news is that Ofgem are suggesting that the distribution charging boundary will be made ‘shallow’ which means that new generators wanting a connection to the distribution network will pay upfront only for their own assets and not for reinforcements to the network. They will pay a larger annual network bill but have a greater range of options to opt for as to when they can generate and how firm their connection is, which all makes sense in a future smart world.
Whilst this is good for new projects, it does present a concern for existing generators who may have already paid for grid reinforcement and could now face higher ongoing charges to pay for further reinforcements as new projects connect.
2. a tougher ‘use of system’ deal for distributed generation
The most obvious concern for distributed generators is that Ofgem is proposing that they should pay TNUoS charges for the transmission network, which they are currently exempt from. So, having seen embedded benefits slashed, generators could now see a new charge added. Ofgem’s argument is that distributed generation at times causes flows on the transmission network and so should pay towards it.
There are also warnings that distribution charges could go up in some locations “in some areas of the network which are dominated by DG, the DG are receiving benefits through DUoS when in fact they are imposing costs on the network.”
3. the end of TRIADs
The somewhat odd system of larger energy users paying based on the three peak demand periods in the year looks set to be replaced by peak charges set at fixed time periods, a major shift for energy managers who study forecasts during winter to try and predict TRIADs and cut demand at those times. This change could shift the business case for generation and storage behind the meter.
4. charging your Tesla (or Leaf in my case) could cost more…
Another proposed change at the domestic end of the spectrum is a defined level of ‘core’ network access for households with the option to pay to add ‘additional’ usage meant to facilitate electric vehicles or more heat pumps. The definition will be tricky but the approach seems sensible.
5. little encouragement for local energy markets
Ofgem explicitly reject the idea of local energy markets “we consider that developing local access rights could be very complex. In GB we have a single electricity market with a uniform wholesale market price. Our current concern is that the development of ‘local’ access rights may have the effect of splitting GB’s single market into multiple local markets”.
They propose instead that charging will reward local balancing of supply and demand where it benefits the network. In other words, if you connect generation in an area where there is more demand than the system can cope with you will receive a credit due to reducing the need for reinforcement. In such a system a contract to sell all your power to a local energy user via the public network would continue to have no benefit in reducing network costs.
What are we trying to achieve with all this again…?
Much of what Ofgem is proposing are sensible measures to send the right signals for a smart decentralised network, but proposals such distributed generators paying towards the transmission network raise the question as to what we are trying to achieve.
Ofgem’s focus is on efficient use of the network to minimise customer bills. Sensible enough in itself but rather a narrow goal.
It seems strange that such a critical set of signals on our electricity system have no link to delivering core government energy policy objectives such as green growth and can, indeed, work directly against them.
It feels like we could be heading down the route we took with broadband where to minimise costs we have focused on getting more out of the existing copper wires, rather than installing fibre. No doubt government and the regulator envisaged happy customers congratulating them for keeping down bills. In fact, we have unhappy citizens and businesses whose broadband isn’t fit for the modern world and a bigger cost to fit the fibre we should have installed in the first place.
We think Ofgem should have a broader objective to ensure the nation’s critical energy network infrastructure is fit for purpose to deliver the government’s Clean Growth Plan and Climate Change Act. That will mean an efficient network but also one where we invest to enable the UK to lead the way in developing the smart, decarbonised energy system of the future.