In recent years, many businesses have been able to save money by consuming power generated from their own sites. Many of these savings have arisen because some network and policy costs are avoided in comparison to purchasing electricity off the grid.
As a result, these private wire arrangements have grown in interest over recent years as generators look to benefit from network and policy cost avoidance. However, with a network reform and debates on policy cost recovery, these arrangements may need to evolve. Research from Cornwall Insight looks at the expected evolution of cost avoidance over the next five years and considers the potential impact of ongoing reforms.
- The removal of policy costs from the electricity bill has a material impact on the private wire business case.
- DUoS charge avoidance for a low voltage half-hourly user is shown to decrease following the implementation of the Targeted Charging Review (TCR).
- However, the proportion of DUoS charge avoidance under peak time of use charging may increase for some users by 2025-26.
The below graph shows the potential p/kWh policy cost avoidance under current arrangements for a typical private wire installation with a large business user.
Laura Woolsey, Analyst at Cornwall Insight, said:
“Policy costs over the next five years are expected to rise, driven predominantly by an increase in Contract for Difference (CfD) charges. Under current arrangements, the increasing cost would continue to send a clear signal for customers looking to avoid this to locate generation behind the meter.
“In the event of a shift to general taxation, this signal will be lost entirely, with policy costs removed across all electricity bills and no specific benefit offered to private wire users, impacting existing and new generation alike.
“However, whilst removing policy costs from the electricity bill could have material impacts on the private wire business case, ongoing network charging reforms continue to provide incentives. DUoS charge avoidance for a low voltage half-hourly (LVHH) user is shown to decrease following the implementation of the TCR, as a larger proportion of the cost is shifted to unavoidable fixed charges.
“Although, when looking at peak cost avoidance for a user under TCR band two, a different signal emerges, with cost avoidance increasing from 31% to 37% by 2025-26. So, whilst overall network cost avoidance signals are dampened, at peak times, they could be set to rise.
“Industry changes will continue to impact the pros and cons of private wire arrangements in future, making the long-term viability of such arrangements difficult to calculate. However, it is clear that in the next few years, policy shifts and ongoing network reform will play a key role in determining avoidance benefits and even how behind the meter assets are best utilised.”
Notes to Editors
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