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UK: Significant changes proposed for distribution connections

  • United Kingdom
  • Energy and infrastructure

02-07-2021

On 30th June 2021, Ofgem published a consultation on its “minded-to” positions relating to the Access and Forward-looking Charging Significant Code Review (Access SCR). The response deadline for the proposals in the consultation is 25th August 2021.

Simon Davies, Principal Associate comments: “The minded-to proposals set out in the consultation have potentially far reaching impacts for stakeholders and investment decisions in respect of distribution generation projects. Investors should take note of the proposal to charge transmission network use of system (TNUoS) to all generators above 1MW and begin to assess the impact (which is likely to be location dependent) that this would have upon the financial modelling of a project. Stakeholders are also encouraged to engage in the consultation if they have strong views on this topic, as the TNUoS proposals are still subject to a level of uncertainty, including in relation to any transitional or grandfathering arrangements.

Investors in new (i.e. pre-construction) distribution level generation projects and customers, such as large industrials and data centres, are likely to welcome the proposals in relation to connection charges and network access rights, as these proposals have the potential to decrease up-front connection costs and provide generators with the option to utilise faster and more flexible connections that meet their needs.”

Set out below are the three key proposals to the "minded-to" positions under this consultation. If finally approved, these reforms will begin to take effect from 1st April 2023.

Transmission Charges for Small Distributed Generators (SDGs)

Ofgem is proposing to charge all generators over 1MW TNUoS generator charges. Ofgem cites this change in transmission charges being due to the growth in small distributed generation, thus rendering the current charging arrangements for generators under 100MW no longer fit for purpose. Ofgem’s intention is that by charging all generation TNUoS generation charges, it will remove a “significant difference in investment and operational signals” between SDGs and transmission connected/’large’ (i.e. over 100MW) distribution-connected generation and thereby create a level playing field.

The cost impact on SDGs is expected to be greatest in Scotland. However, in more southern regions, the consultation highlights that moving to TNUoS generation charges may lead to lower charges or even an increase in credits. Given the potential impact of increased costs for generators, part of the responses sought will be on whether transitional arrangements should be put in place for this policy. Ofgem has not confirmed what transitional arrangements it would make (e.g. delayed implementation or grandfathering). Different implementation options are still being considered at this stage.

Distribution Connection Charging

Ofgem is proposing to change connection charging arrangements by reducing the generator’s contribution to network reinforcement within the upfront connection charge for new generation connections, and removing it completely for demand customers. These changes are being proposed as Ofgem considers that the current charging arrangements no longer provide an effective locational signal for network users and may actually slow down the roll-out of low carbon technologies across the system. Details of how these reductions will be applied is set out in Appendix 1 of the consultation.

Ofgem is not "minded-to" follow through with previous alternative proposals to introduce the option for users to defer payment after the connection is made, or introduce new liability or security obligations on users.

Definition and Choice of Access Rights

Ofgem is proposing to introduce better defined “non-firm” and new “time-profiled” access choices for distribution connections and to define new non-firm arrangements in relation to the percentage of time that users are willing to be curtailed.

The access choices are being proposed to be split into two aspects:

  • Levels of firmness - This would provide choices about the extent to which a user’s access to the network can be restricted and their eligibility for compensation if it is restricted
  • Time-profiled access - This would provide choices other than continuous, year-round access rights (e.g. specific time restrictions on when a customer can import or export, such as reduced level of access during network peak periods)

Traditionally, different DNOs have offered different kinds of “flexible” connections, i.e. connections which allow the connecting customer to be connected more quickly and avoid needing to make a contribution to reinforcement costs, in exchange for the risk of interruption or curtailment, without compensation. This proposed move is intended to help users get quicker or cheaper access to the network in line with their needs, by making better use of existing network capacity. The idea is that if generation and demand customers have clearly defined network access conditions it will improve their ability to provide flexibility services and access cost savings or revenue streams related to such flexibility.

Ofgem also considered “shared access” (i.e. to allow users across multiple sites, connected in the same broad area, to jointly agree an aggregate capacity level) as a third aspect, but have indicated that it is not minded-to proceed with this.