Grid consultant Roadnight Taylor has written to Ofgem urging for a more appropriate mechanism for charging for supergrid transformer (SGT) reinforcement.
Penned directly to the energy regulator’s CEO, Jonathan Brearley, Roadnight Taylor expressed that a review should seek to “remove current distortion between distribution connections in different locations, and between distribution and transmission connections, and remove the high costs and uncertainty many distribution customers face”.
The current system, which sees most transmission reinforcement work funded via Transmission Network use of System charge (TNUoS), sees SGT reinforcement costs split between being socialised or charged directly to large triggering distribution customers, depending on the categorisation of the nearest grid supply point (GSP).
According to Roadnight Taylor, this leads to a “postcode lottery” as well as a distortion of connection charging across the country.
Often, when distribution customers trigger an SGT reinforcement at a connection site, these costs can be passed down by National Grid ESO to the relevant distribution network operator (DNO). From here it can be passed down even further to the customer or group of customers and, with the costs sometimes ranging from £12 million to £60 million, these costs are often far too much for individual distribution connections to fund, the letter read.
Roadnight Taylor explained that if a customer is unable to pay for the SGT reinforcement costs, the remaining customers pick up the higher proportion of the costs until, theoretically one customer could be left to pick up the rest of the cost. Investors are often not able to accept this risk and so projects stall or are cancelled.
Because of this, the organisation argued that “this is an urgent issue and needs attention by Ofgem”.
Roadnight Taylor proposes three options
To solve the forementioned issue, Roadnight Taylor proposed three different options including socialising all SGT reinforcement via TNUoS, socialising all SGT reinforcement via the distribution use of system and allowing DNOs to use a cost of apportionment factor (CAF) approach to SGT reinforcement charging.
The first option would effectively turn all present connection asset sites into infrastructure sites. This would mean that SGT reinforcement charge are not passed on to the DNOs or to distribution customers. Roadnight Taylor argues that this will give National Grid ESO and transmission operators (TOs) a stronger signal to take a more holistic view in relation to SGT reinforcement.
The second option gives DNOs appropriate mechanisms within RIIO-ED2 to request reinforcement of SGTs in addition to increasing the annual “pas through” costs to customers. Roadnight Taylor believes that this approach would fit well with the requirement for DNOs to act more strategically, as build and non-build solutions would have to be presented by the DNO to provide the best holistic option.
The final approach is labelled the “least preferred approach” due to a lack of incentives to National Grid ESO, TOs or DNOs to reinforce strategically on a whole-system basis. Roadnight Taylor explained that whilst it is better than the current approach, primarily due to giving customers certainty over how much SGT reinforcement charge they will be responsible for, it would still present a blocker to connections.