Ofgem’s Network Access and Forward Looking Charges review – should I be interested

Spoiler – if you are a distribution connected generator, yes, In a big way

Ofgem is currently progressing one of its biggest overhauls of network charging; with the Targeted Charging Review having only recently concluded that is quite a statement. We have already seen the value to distribution connected generators of exporting at peak reduce significantly through the introduction of the Embedded Export Tariff, soon to be followed by the value of reducing demand at peak times (so-called “Triad avoidance”) reducing dramatically from April 2022 if industry code modifications go to plan.

But that is just the start

Ofgem has now turned its full attention to its Network Access and Forward Looking Charges Significant Code Review (a bit a mouthful –so let’s go with the Access SCR) which could have even bigger impacts for distribution connected generators.

Generators connected to the distribution network currently benefit from two value streams:

  • Albeit much smaller than the Transmission Network Use of System (TNUoS) embedded benefit used to be, the Embedded Export Tariff (EET) still provides some value for generators in the South of the country who export at peak times. Crucially, it is “floored” at zero, so those in the North and in Scotland don’t face an EET charge – the thinking being that to expose generators to an EET charge would incentivise them to reduce output at peak, distorting the wholesale market
  • Distribution Use of System (DUoS) credits (commonly known as “generator” DUoS or GDUoS), particularly for those connected to the lower voltages of the distribution network (at 11kV and below) can also be lucrative. This is particularly the case for generators who can operate in the peak “red” time periods. They are the same within each distribution region and throughout the year, albeit they do vary by time of day with low credits overnight, mid-range credits in the working day and high credits in early evening.

Both of these are now up for debate, with potentially significant consequences

Firstly, on the EET. Ofgem’s central option under the Access SCR is to charge distribution connected generators in the same way as their transmission connected counterparts are charged – namely on a capacity basis. The regional differentiation is broadly similar – those in the South East benefit from credits while those in the North of England face small charges and those in North Scotland face high charges. But the big difference is that the protection of the EET “floor” would disappear, so generators in the North would be exposed to a new cost item which they currently avoid. They would also be exposed to the raft of uncertainty currently faced by transmission connected generators (take a look at the number of active Connection and Use of System Code (CUSC) modifications looking at how TNUoS should be charged and you’ll get the picture).

Secondly, on DUoS. Under the Access SCR, Ofgem is seeking to introduce much greater locational granularity to charges and credits. This would mean charges varying by location depending on the state of the network in that location within the DNO region. Most notably for generators, this could mean the removal of “blanket” credits in all locations and instead result in charges at certain times in areas which are considered “generation dominated” at those times. This isn’t all bad – generators in heavily demand dominated areas could see additional benefit in the form of higher credits, and flexible generators may be better off if the increase in locational granularity is also coupled with an increase in the sharpness and variability of time of use signals. But this potential change could be a shock for those in generation dominated areas who find themselves exposed to a new cost.

Don’t despair

Navigating the impacts of these changes can be extremely challenging and we are continually monitoring developments to ensure we can provide our clients with the best data available to help manage these uncertainties. Our long-term 15-year forecasting of generation TNUoS charges (including sensitivities to all those ongoing CUSC modifications) makes sure you have a clear picture of the scale of the challenge if Ofgem were to introduce TNUoS charges on distribution connected generators. Added to this, our site-specific assessments of the state of power flows on any given section of the DNO network can help you understand the direction of travel for DUoS credits.

For further information on how our network cost and revenue forecasting can enable you to make better operational and investment decisions, please get in touch with Andrew Enzor on a.enzor@cornwall-insight.com.

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