Utility Week

28 | JUNE 2022 | UTILITY WEEK Electricity distribution risk creating barriers to investment. • Boundary distortions between trans- mission and distribution. Differences between connection charging arrange- ments at the transmission and distri- bution levels may be creating market distortions or impacting on competition between generators connecting to differ- ent networks. Ofgem has therefore decided to intro- duce a "fully shallow" connection charging boundary for demand customers, which will no longer be required to contribute towards reinforcement of the wider network and will have to pay only for extension assets. It has also decided to make the connec- tion charging boundary shallower for gener- ation customers, which will still be required to contribute towards network reinforce- ment, but only at the voltage level at which they connect. Ofgem said these changes will reduce the price signals to customers about the cost of connecting in different locations and acknowledged that this could lead to ineffi- cient investment decisions by some custom- ers in some locations. However, the regulator said these efficiency losses are outweighed by the expected benefits in terms of encour- aging the uptake of low-carbon technologies and strategic investment by DNOs. To mitigate these concerns, Ofgem said there will be some exceptions to the new arrangements to protect other customers from excessive connection costs. Ofgem said it will retain the high-cost cap – a threshold above which connecting gen- eration customers are required to pay for any reinforcement costs in full. The cap is cur- rently set at £200/kW. It will also introduce a similar cap for demand customers set at £1,720/kVA. In line with the current arrangements for genera- tion customers, the caps will both apply to reinforcement costs at the voltage level of the connection and the one above. Reinforce- ment costs below the cap will be paid accord- ing to the new charging arrangements. The regulator said the introduction of a high-cost cap for demand should affect only a small number of expensive connections but will provide a "necessary backstop" to protect billpayers from excessive costs once demand customers' liability to pay reinforce- ment costs has otherwise been removed. Writing in a blog on the regulator's web- site, Ofgem's head of electricity network access, systems and networks, Patrick Cas- sels, said: "The changes we are announcing today will mean more of the costs of these new connections will be shared in a fair and proportionate way among all network users, making the likes of electric vehicle charging points and heat pumps, more accessible and affordable for individual customers." Flexible connections Ofgem also gave its final verdict on new requirements regarding the increasingly common flexible connections offered by DNOs, which allow users to connect more quickly and cheaply in constrained areas of the network prior to reinforcement taking place. In exchange, they are subject to cur- tailment during periods of high congestion. As Ofgem noted: "At present, there is no commonly defined limit on the extent to which their network access can be curtailed. Arrangements can be poorly defined, with no standard definition of curtailment, and how they work in practice can vary across DNOs." The regulator has therefore decided to introduce a requirement on DNOs to offer Analysis larger network users standardised non-firm connections with clear curtailment limits and end dates on curtailment. These offers must contain curtailment limits defined in terms of the numbers of hours or percentage of time that users agree to be curtailed. DNOs must develop a stand- ardised approach to setting these limits. Any curtailment above these levels should be procured from flexibility mar- kets. Ofgem has decided to introduce an "exceeded curtailment price" – a cap on the price of flexibility that DNOs are required to procure if they need to exceed the limits. This will also be the price connecting cus- tomers receive as compensation if DNOs cur- tail their connections above the limits. The regulator emphasised that this compensation should not be used as a default remedy and DNOs must demonstrate that they have taken "best endeavours" to avoid such situations. Furthermore, DNOs will be required to agree explicit end dates for non-firm connec- tions in advance. Ofgem said these end dates will ensure DNOs invest in network capacity: "An open-ended arrangement provides no incentive on network operators to resolve the constraint and progress with reinforcement or procure flexibility in a timely manner." The regulator said there will be an excep- tion for customers that do not request firm connections or are unwilling to accept the costs of firming them up. Ofgem has issued a direction to imple- ment the changes to connection charging and access arrangements, which are due to come into effect for the beginning of the RIIO-ED2 price controls in April 2023, through modifications to the Distribution Connection and Use of System Agreement. Tom Grimwood, news editor continued from previous page Ofgem first launched its Significant Code Review into reforming network access in December 2018

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