Electricity network reform: where are we now?

In its Energy Security Strategy (ESS), the UK government set out ambitions for 95% of electricity to be sourced from low carbon generation by 2030 and for the UK to have a fully decarbonised electricity system by 2035. In order to accommodate this ambition, the electricity network will need to undergo a significant and fast paced transformation to facilitate the increasing integration of low carbon technologies and rising demand as we transition to greater electrification of heat, transport, and industry. On 4 August, BEIS and Ofgem published their joint Electricity Networks Strategic Framework (ENSF) which builds on these recent government commitments and sets out the direction of travel for future policy and regulation, and the key actions required to achieve this vision. We explore these actions below and consider how recent workstreams from BEIS and Ofgem look to progress development across these targeted areas.

Strategic leadership by the FSO

A key element of electricity system reform will see the implementation of an expert, independent Future System Operator (FSO).

Progress towards the implementation of the FSO had been made prior to the publication of the ENSF, with BEIS and Ofgem setting out key decisions in April 2022 in response to their joint FSO consultation launched in the previous year.

The implementation of the FSO will ultimately facilitate a more strategic network planning approach, with a key focus of this being the coordination of onshore and offshore developments. This will build on the Holistic Network Design (HND) and updated Network Options Assessment (NOA), published earlier this year and evolve these workstreams into a single Centralised Strategic Network Plan (CSNP) for both the onshore and offshore electricity transmission network, with the FSO taking on the central strategic network planner role.

Resilient and forward-looking network development

The ENSF highlights that Ofgem will design and implement the price control frameworks to enable strategic network investment and outlines commitments to consult on the regulatory approval framework for onshore transmission network investment.

The price controls are an integral element of the electricity networks and RIIO-2 offers opportunities to refocus delivery objectives over the next five years and set out funding for key network developments to help provide resilience and deliver on government ambitions. On 8 August 2022, Ofgem published a consultation proposing measures to support investment in onshore electricity transmission under the RIIO-ET2 price control. The consultation highlights that accelerated project delivery will contribute to significant reductions in constraint costs for consumers, outlining the potential long-term benefits of a targeted and forward-looking approach to network development.

Efficient infrastructure build

The government has outlined commitments to speed up planning consents by revising the energy National Policy Statement for the high-voltage electricity network in England and Wales and establishing a fast-track consenting route for priority offshore wind and related transmission infrastructure.

Alongside the review of the National Policy Statement (which closed in November 2021 and is awaiting government response), BEIS recently issued a call for evidence seeking views on the current land rights and consents processes for electricity network infrastructure. On 4 August 2022, BEIS also published the outcome of its Competition in Onshore Electricity Networks consultation which looks to open up electricity network ownership and operation to third parties.

Cost-effective and timely connections

The government and Ofgem have also committed in the ENSF to improve the affordability of connections by reducing costs for distribution network connections and will also implement measures to reduce network connection timescales.

Progress towards these commitments has most recently been seen through reform to electricity connection arrangements through the Access and Forward-Looking Charges Significant Code Review (Access SCR) which concluded earlier this year. This set out changes to electricity distribution network connection charges and how users’ access rights to the distribution network are defined. The revised arrangements will look to provide better signals and options for consumers and reduce the overall connection charge faced by those connecting to the distribution network.

Cost reflective charges

The ENSF highlighted Ofgem’s ongoing review of network charging arrangements for a decarbonising system. The government is also considering the impacts of net zero on consumer costs to ensure they are kept as low as possible, are reflective and shared fairly.

In addition to the Access SCR, the Targeted Charging Review (TCR) has also recently concluded and is being implemented into network charges. Further reform to Transmission Network Use of System (TNUoS) and Distribution Use of System (DUoS) charges are currently being progressed through the TNUoS task forces and DUoS SCR. This is expected to result in further charging reform to ensure that the right price signals are being sent to consumers and that charging arrangements are fit for purpose amid the wider backdrop of system reform.

Electricity networks are currently undergoing a significant degree of reform to ensure that the system can facilitate future energy demands and net zero objectives while facilitating fair apportionment of costs. Cornwall Insight’s latest training course on the Commercial Considerations of Electricity Network Charging Reform can help you stay on top of these developments. The course provides attendees with an understanding of current and future network charging arrangements and an overview of network charging reforms. For more information on this course or wider network services please get in touch with Laura Woolsey l.woolsey@cornwall-insight.com or Tom Faulkner t.faulkner@cornwall-insight.com

Related thinking

Energy storage and flexibility

Waiting to connect: the problems and solutions for network connection queues

The number of grid applications has risen significantly in recent years, resulting in increased pressure on the electricity networks to facilitate new connections. In its Energy Security Strategy, the UK government set out ambitions for 95% of electricity to be sourced from low carbon generation by 2030, and for the...

Energy Market Design

Are prices going to rise in Contract for Difference Allocation Round 5?

A number of factors may be about to put an end to the trend for falling energy prices in the Contract For Difference (CfD) scheme. The CfD scheme has provided strong subsidy support whilst also providing consumers robust levels of protection. High investor confidence and steady reductions in capital costs...

Business supply and services

What happened in 2022 in the energy market?

The GB energy market never stands still and 2022 was no different. In this infographic, we look back at some key happenings from the past year in different segments of the GB energy market.  Click the image below to see our snapshot.

E-mobility and low carbon

2022’s most exciting ‘Charts of the Week’

Some of our team have looked back throughout 2022 and picked their most exciting ‘Chart of the Week’.​Their choices include exploring green tariffs, wholesale gas prices, CfD allocation round 4 and the MHHS Implementation Levy.  It’s My Birthday – Two years of Dynamic Containment Picked by Tom Faulkner, Head of...

Business supply and services

Terms and conditions apply: Ofgem looking further into business market

As turbulence has continued in the wholesale energy markets throughout 2022, including through the crucial October contracting round for the business supply market, non-domestic energy suppliers have come under considerable pressure. Firstly, they have had to attempt to pass through extraordinary price increases to customers in recent months, particularly if...

Energy storage and flexibility

Energy Market Bulletin: 2022 Review of Power and Gas

2022 has positioned itself firmly as one of the most memorable for the energy sector in recent years. We have witnessed seismic changes in the wholesale cost of energy, transformational proposals for market reform and two new Prime Ministers. In our last Energy Market Bulletin report of 2022, we have...

Energy storage and flexibility

Balancing Reserve: ESO proposes new regulating reserve service

In recent months National Grid ESO has been developing a new reserve service to improve the management of the system and enable the grid to accommodate zero carbon operation of the electricity system by 2025. On 28 September the ESO first announced at their Autumn 2022 Markets Forum, a proposal...

Low carbon generation

UKERC issues response to REMA consultation

On 3 November, UK Energy Research Centre (UKERC) published a response to BEIS’ Review of Electricity Market Arrangement (REMA) consultation. Our experts discuss what the response addresses and how some of the proposals would place new responsibilities on retail energy suppliers. Read the full blog on our What is REMA portal, which...