Ofgem has delayed its planned overhaul of network charging and access arrangements to allow for further analysis of its proposals.
The news comes as the regulator faces mounting pressure to reconsider its position, with Aurora Energy Research warning the changes could set back the progress of renewables by up to five years.
Ofgem is currently conducting two significant code reviews – one, known as the targeted charging review, looking at residual network charges and embedded benefits, and the other examining forward-looking charges and grid access arrangements.
As part of the first, the regulator has announced plans to shift the residual charges designed to recover the sunk costs of existing network infrastructure entirely onto demand and apply them in the form of fixed charges on consumers. Ofgem compared this to the “line rental” model used for landlines in the telecoms sector.
Setting out its minded-to decision in November, the regulator said the changes would either be introduced in April 2021 or phased in between 2021 and 2023. It is now considering a third option as well – to implement them in 2023.
Ofgem also proposed to bring an end to a number of so-called embedded benefits – the favourable charging arrangements enjoyed by distributed generators – including residual triad avoidance payments, which are already being drastically reduced, and an exemption from balancing charges. It said these reforms would either come into effect in April 2020 or April 2021.
The earlier date has now been ruled out. Ofgem said it needs to undertake further analysis of the proposals to take account of the suspension of the capacity market shortly before the publication of its minded-to decision.
The second of the reviews is at an earlier stage having only commenced in December.
At the time, the regulator said the changes it is considering to grid access arrangements and the forward-looking charges used to fund new investments in the power grid would be introduced in April 2022 for transmission networks and April 2023 for distribution networks. It is now proposing to introduce all of the reforms in April 2023.
Ofgem intends to publish two working papers on the changes later this year, with the first coming over the summer. The second will focus on the arrangements for small network users. The regulator said it plans to consult on draft proposals in mid-2020 before making a final decision in early 2021.
Speaking at Utility Week Live in Birmingham earlier this week, Joe McDonald, vice president of sales at Limejump, described the targeted charging review as “one of the biggest worrying factors” in the energy market right now.
He said the current proposals would halt innovation around flexibility by undermining the business models of assets such as behind-the-meter batteries.
McDonald criticised Ofgem’s decision to conduct the two reviews on different timetables, explaining: “We don’t actually know what’s to come in terms of the opportunities for flexibility. All we know are all the bad things that are happening in terms of limiting innovation.”