Ofgem has fast-tracked a proposal by Nissan to alter the way residual transmission charges on demand are applied to multiple customers connected to the transmission network at the same site.
The regulator said urgent status for the modification was requested on the grounds that it will “significantly impact the commercial viability” of an “imminent and substantial investment decision” by Nissan and its partner AESC.
Nissan is planning to create a flagship electric vehicle hub, dubbed EV36Zero, at its existing car plant in Sunderland. As part of the project, battery manufacturer AESC is building a £450 million “gigafactory” at the site.
Up until recently, the partners were intending to establish an independent distribution network operator (IDNO) to serve the site. Nissan said they would have been treated as extra-high voltage customers connection to a distribution network and would have collectively paid £2.5 million per year in residual transmission charges.
They have now abandoned these plans after Ofgem announced a review of the regulatory regime for IDNOs. The regulator launched the review partly in response to IDNOs seeking to connect directly to transmission network as would have been the case for the Sunderland site. Ofgem said it was concerned that this would enable customers to avoid making a fair contribution to shared network costs.
Under the Connection and Use of System Code (CUSC), residual transmission charges on demand are billed to the lead party of a supplier Balancing Mechanism Unit (BMU). Most transmission-connected demand sites only have one supplier so are effectively charged per site.
However, Nissan said if a number of customers are using the same connection but want to have different suppliers, they are all billed separately. In its case, Nissan said doing this would increase its aggregate charges by £4 million per year. In reality, the company said it and their partners would simply choose the same supplier to avoid this additional cost.
Nissan has therefore proposed a CUSC modification that would split the charges for a site between supplier BMUs in proportion to their capacity usage.
Presenting its case in the proposal document, Nissan said the current regime creates “a significant distortion in competition” by applying “materially different residual charges” to demand customers depending on whether they are connected to the transmission or distribution network, despite their use of the transmission network being “identical”.
The company said it is “incentivised to have the same supplier to keep costs downs, limiting customer choice.”
“For example, one customer may want green energy and another may not, but they are forced to compromise with their neighbours to keep their total cost of supply down,” the document states.
“For large energy users such as Nissan and AESC UK this is a critical cost in maintaining our competitiveness in international markets.”
Nissan said the proposed change would have “no impact” on the revenues collected by the Electricity System Operator on behalf of the transmission owners “as each ‘site’ will remain paying the same total charges.”
The company also emphasised the benefits of its EV manufacturing hub to the UK, its economy and its net zero goals: “The site will be building EVs that will be critical in meeting not only the UK’s net zero ambitions, but also lowering global emissions as we export to other countries.
“Those exports also add billions of pounds to the UK balance of trade. The UK government sees this site as critical to the expansion of the UK’s green manufacturing base, as does the local authority, both of whom have been critical in supporting Nissan and AESC UK plans.”
“We both fully expect to be investing in on-site renewables, EV charging for car deliveries, potential purchases of renewable electricity supplies, etc,” it adds.
“However, the companies would like to do this to best meet each companies’ individual needs and timetables, not be forced into sharing a supplier and all the associated costs of doing so.”
Nissan requested for the modification to be treated as urgent to enable its implementation by the start of the next charging year on 1 April 2024.
“Our investments decisions are not yet finalised and transmission charges are now on the critical path,” the firm warns.
The company said this an “imminent issue” for itself and AESC “with a significant commercial impact on our business plans.”
Ofgem has now granted urgent status to the modification, explaining in a open letter that: “Whilst United Kingdom trade and business interests sit outside the purview of the authority, our principal objective is to protect the interests of existing and future consumers.
“As consumers, Nissan and AESC UK are materially affected by the current approach to billing, potentially to an extent that their manufacturing development may become unviable. We acknowledge that given the strategic importance of the development this would not be in the interests of the UK.”
Ofgem approved a fast-tracked timetable, which would see the final report from the CUSC panel submitted to the regulator by 6 December. It did not give a date for its decision but listed the potential implementation date as 1 April 2025 – one year later than Nissan had sought.