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UTILITY Week 19th February 2016

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utILIty WeeK | 19th - 25th February 2016 | 13 Policy & Regulation Analysis T he high number of renewable projects looking to connect to the distribution network and the limited amount of capacity to go round is creating problems for both distribution network operators (DNOs) and distributed generation developers. DNOs are faced with undertaking costly reinforcement and extension of their net- works to meet demand, while developers hog precious capacity with projects that pro- gress at a snail's pace – or not at all. Network companies are also required to assess and issue quotations for projects regardless of how likely they are to proceed, even though quoting work is a cost centre for the DNO. In fact, the huge costs associated with reinforcing the network can oen be the deciding factor in whether or not a develop- ment goes ahead. Ofgem said it found that many connections customers were unaware of the options available to reduce the cost of reinforcement, or to spread payments for the work, and that they may not have cancelled the project if they had been aware. To address some of these issues, the con- nections business is getting serious, with new rules and options on the table. Ofgem finished a consultation on the issue in Sep- tember last year and came up with a range of "actions" it wanted DNOs to pursue which it said would improve the situation for both networks and developers. Some of the options being considered effectively build cancellation clauses into DNO connections contracts on a "use it or lose it" basis. Others oblige DNOs to make developers more aware of "flexible" connections. Ofgem recently released an update on the progress DNOs were making on the actions that emerged from its consultation. Its verdict was that while it "welcomed the progress made", much further work is still required to improve the situation. Freeing up connection capacity Ofgem says customers seeking new con- nections would benefit from a regime that allowed DNOs to reallocate capacity from one customer to another if the capacity was not being used. To that end, it wants "milestones" incor- porated into connections contracts, which developers would be required to meet or face the prospect of losing the capacity. It says it recognises that this is not a "straightforward issue" and that DNOs would "benefit from a common set of principles to underpin these milestones". The Energy Networks Associa- tion (ENA) was asked to come up with a set of such principles by last December, which it did, and those principles are going out for consultation next month with the industry at large. These principles set out "rigid" early mile- stones, applicable before a project receives planning permission, and more flexible mile- stones later in the project. Ofgem wants the milestones introduced by June 2016. All this work to give DNOs more pow- ers to free up capacity builds on initiatives already undertaken by Ofgem, such as a licence modification approved in July last year allowing DNOs to approach customers who are under-using their capacity for long periods of time. However, Ofgem also asked the ENA to look at other ways of allowing DNOs to with- draw capacity, and the ENA has suggested that DNOs be allowed to take away unused capacity unilaterally, using powers under section 17 of the Electricity Act. Separately, the ENA has also asked that assessment and design fees be reintroduced in an effort to deter customers from making multiple connection requests just to find the cheapest option. An ENA spokesperson said: "Unless this anomaly is addressed, this issue will limit the connection opportunities for non- speculative applicants. In 2014, the ENA submitted a proposal to the Department of Energy and Climate Change (Decc) that assessment and design fees be allowed to reflect the costs that they face in processing them. This has support from the distributed generation community and we look forward to Decc's consultation on this." Ofgem is looking favourably on the pro- posal, saying it could "free up DNOs to improve the quality of 'genuine' quotes issued and avoid situations where remaining spare capacity on a network is allocated to projects that may never proceed". It said Decc would be seeking further evidence on the issue. At the other end, Ofgem also recognises the difficulty some customers, particularly smaller community schemes, have in financ- ing the projects and has encouraged all DNOs to offer flexible payment terms, and to communicate this properly. Payment plans Customers want to get connections, but they also want to do so quickly and cheaply. One of the ways of doing this is via a "flexible" connection to the grid, where the customer can be connected without reinforcement as long as they agree to being constrained if the network nears its capacity limits. This option is available now and has obvi- ous appeal to many developers, but Ofgem says many customers are simply not aware of it and has instructed DNOs to make a better fist of telling them. Another under-used option is that devel- opers can form a consortium and share the cost of connection. Although Ofgem said a consortium approach was "not practical in all situations", it wants DNOs to "encourage and facilitate the establishment of consortia where appropriate". To this end, all DNOs have made informa- tion on alternative connections more readily available, or have pledged to do so in 2016. Connections get serious Ofgem thinks new connections could be reorganised so that capacity is better allocated, and better used once it is approved. Lucinda Dann looks at the new rules being proposed.

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