Ofgem is to reduce the overall connection charge for those connecting to the distribution network, having published its final decision on the Access and Forward-Looking Charges Significant Code Review (Access SCR).
Launched in 2018, the Access SCR is intended to ensure electricity networks are used efficiently and flexibly, reflecting users’ needs and allowing consumers to benefit from new technologies and services while avoiding unnecessary costs on energy bills.
In this review, the regulator concluded that charging arrangements no longer provide an effective signal for network users and that without change, they may slow down the rollout of low carbon technologies (LCTs) across the system.
Its two major decisions to have come from the Access SCR revolve around the distribution connection charging boundary and the definition and choice of access rights.
On the first, Ofgem has decided to reduce the overall connection charge faced by those connecting to the distribution network and retain and strengthen existing protections for bill payers.
As part of this, it will remove the contribution to wider network reinforcement for demand connections as well as reducing the contribution for generation connections.
Meanwhile, for bill payer protections, Ofgem said it will ensure they are protected from cost increases associated with the most expensive types of connections. In these instances, the connecting customer will continue to be required to contribute more to the costs of reinforcement.
Definition and choice of access rights
Ofgem has decided to ensure a standardised non-firm access option is available for larger network users and introduce clear curtailment limits and end-dates for non-firm access arrangements.
Distribution network operators will have to set a curtailment limit for non-firm connection offers and include these in the offer to the connecting customer, who will have to abide by those limits.
Where the customer wishes to connect initially on a non-firm basis, but ultimately be made firm, a date by which the customer should have firm access must be agreed.
Curtailment limits for non-firm connections should be set by the distribution network operator, Ofgem said, and included in the connection offer.
This curtailment limit should be set via a defined process on the basis of maximising network benefit, considering factors such as network availability behind the relevant distribution network constraint, the forecast time-profiled levels of demand/generation and a probabilistic assessment of the level of curtailment may be required.
Connection charging boundaries
Ofgem has made the decision to introduce a ‘shallow-ish’ connection charging boundary for generation and a ‘fully shallow’ connection charging boundary for demand.
The regulator said changes to the connection charging boundary will reduce the price signal sent to customers through connection charges about the cost of connecting in certain areas.
While Ofgem's impact assessment suggests this could lead to less efficient decision making by some customers, the regulator said it considers these efficiency loses are outweighed by the benefits.
These benefits include bringing forward connections of LCTs and encouraging DNOs to invest strategically in the wider interest of all customers.
Ofgem added that a clear definition of what should be considered demand or generation is required to give effect to its substantive decision on the different connection charging depths.
It has therefore decided to direct DNOs to implement the different connection charging depths for demand and generation in alignment with the definitions of a final demand site and a non-final demand site, which were developed as part of the Targeted Charging Review (TCR).
Final demand sites are those where electricity is consumed for any reason other than for the purposes of generation or export. These sites will be charging under the demand connection boundary and will not be required to contribute towards reinforcement costs.
A non-final demand site is a connection to the distribution system which only imports electricity for the purpose of exporting electricity.
Energy storage, meanwhile, will be treated consistently with generation for charging purposes, Ofgem said, which will require storage connections to contribute to reinforcement costs at the voltage connection.
While the original scope of the Access SCR included a wide-ranging review of distribution use of system charges (DUoS) and a focused review of transmission network use of system charges (TNUoS), Ofgem took the decision earlier this year to continue this outside of the Access SCR.
Changes to the TNUoS charges have been called for by the industry for some time, with some generators - particularly in Scotland - paying higher TNUoS charges than others, with SSEN calling them "unfair and volatile".
Alongside its final decision, Ofgem has issued a direction instructing holders of an electricity distribution licence to raise modifications to the DCUSA or other industry codes as required to give effect to the regulator’s decision.
It expects these proposed modifications to be considered through workgroups over the next few months before coming back to the DCUSA panel to be assessed and submitted to Ofgem to allow the reforms to be effective by 1 April 2023.