A change in connection charges aimed at speeding up connections to the electricity grid for new generating plant could see £439 million paid by customers in the two years from 1 April, instead of being charged back to the companies requesting connection. Distribution network operators (DNOs) will also be able to ask to charge further costs to customers for the final three years of the five-year price control.
Ofgem says the change in charging methodology will be of overall benefit to consumers because it will help reduce the connection ‘queue’ for new generation and storage projects that would reduce carbon emissions and make the electricity system cheaper and more resilient. In the outgoing regime a company requesting to connect had to pay the entire cost of upgrading the network to accommodate the new asset. That was the case even if the asset triggered upgrades across the wider network, adding significantly to the project cost and allowing following projects to ‘free ride’ on the resulting extra capacity. The result was that some projects paid disproportionate costs and were subject to delay and uncertainty over whether they would go ahead. That in turn created delays and uncertainty for other projects waiting to connect, because DNOs are required to connect projects in ‘first come first served’. The new regime, where connecting companies will pay only standard immediate costs will remove uncertainty and is part of a suite of measures designed to smooth and speed up connections.
It is not clear how the new charging regime will affect costs in the long term as Ofgem believes it will result in a significant change in behaviour in connecting companies.
After consultation the regulator decided to give DNOs an allowance of £439 million for the additional costs that they may face a result of its Access SCR decision for the coming two years. That figure is just 39% of the allowances that DNOs asked for when they submitted cost estimates in August 2022.
Ofgem said the DNOs can ask for further funding in January 2025 or January 2027 in so-called ‘re-openers’ when Ofgem says more will be known about the actual costs. In fact Ofgem says the uncertainty “could mean that the allowances we have provided are sufficient for the full five years of the price control”. The regulator says, however, that in general network investment is needed so broadly costs are expected to rise.