Utility Week

12 | 4TH - 10TH MAY 2018 | UTILITY WEEK Policy & Regulation "Network charges will influence how the system develops, so must meet the needs of a system that is rapidly transforming." Opinion Frances Warburton I t would be an understatement to say we have a lot going on across energy systems markets and regula- tion. The scale of change reflects the pace of develop- ment in decarbonisation, new technology and in how people interact with the system. Together with the government we have a plan in place to help Britain move to a smarter, more flexible energy system. We have also been looking at the charg- ing and access arrangements for the networks because they send signals to everyone who uses the energy sys- tem, from owners of large power stations and renewable plant to consumers who depend on networks for supply. Connection and forward-looking network charges (which give users price signals for connecting to and using the grid) and residual network charges (largely related to fixed, common and historic costs for running the networks) comprise about a quarter of total consumer electricity bills, or about £9 billion per year. The arrange- ments for these charges will influence how the system develops, so we must make sure they meet the needs of an energy system that is rapidly transforming. We must also make sure the interests of all customers are looked aer, from the engaged "prosumers" to those who are less engaged in the market, and vulnerable customers. Developments in technology, not just in renewable generation and storage but in data sharing and manage- ment, mean new models for individuals and communi- ties to trade and share energy are becoming possible. We want to ensure the regulations and commercial arrange- ments enable continuing innovation, and continued delivery of reliable, affordable and sustainable energy for all consumers. So, we are looking at how users access the system, bearing in mind that some consumers will demand electricity at some times, and generate or discharge from storage at others. These actions will have different effects on the system, and so we are consider- ing whether access conditions and/or forward-looking charges should change to reflect those effects. Access rights to use the electricity system are currently allocated on a first come, first served basis and in some areas, connections are only possible following invest- ment in new network capacity. But new investment is not always the best approach as it is costly and takes time to deliver. We also need to consider smarter ways to use existing capacity so that it is allocated to those who value it the most, while meeting the core essential energy needs of all consumers. This could allow more efficient use of the networks especially as some generators, such as renewable plant or stor- age operators, may not use their connection con- tinually. We have been thinking about whether there can be greater choice and better pricing of network access. It could also be traded, or transferred, between users. Doing so could speed up connections and cut the costs of the system for consumers. Alongside this work we are reviewing the structure of electricity network residual charges in our targeted charging review. These charges are designed to "top up" the revenue network companies collect via the forward-looking charges. Residual charges are not intended to drive users' decisions on where they should invest and how they use the networks as this is the role of the forward-looking network charges. Nonetheless we recognise residual charges can influence those choices. Our objective is to reduce the extent to which these charges create distortions that cause harm for consumers. The way in which residual charges are currently set may also lead to unfair outcomes for some consumers. Everyone connected to the electricity system benefits from the reliable supplies it offers year-round. But some consumers may be paying more for this benefit than oth- ers. For example, someone with on-site generation who has the same ability to access the networks all year round may pay less than someone without on-site generation. We need to address all these issues. We plan to set out our views on potential reforms to connection arrange- ments and forward-looking charges in the summer, and we plan to publish the provisional outcome of our tar- geted charging review in the autumn. We have been talk- ing to industry stakeholders and consumer groups about these issues over the past few months. Their input into this work is important, especially as any reforms could result in major changes to the codes that govern how the transmission and distribution networks charges are set. Our energy system is decarbonising at a much quicker pace than was expected and new technologies and busi- ness models are offering customers more opportunities to engage in the market. The network companies have an important role to play in managing changes in how con- sumers want to use the energy system. We will ensure the companies meet these challenges while delivering better value for consumers when we set a tougher round of price controls from 2021. We will work with stake- holders to keep costs to consumers down by ensuring network capacity is used as efficiently as possible and to spread the costs fairly among all consumers. Frances Warburton, director of energy systems transition, Ofgem Frances Warburton will speak at the Wales Energy Conference in Cardiff on 16 May. For more information, visit: event.utilityweek.co.uk/wales/

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