Ofgem has outlined a number of potential changes to network access arrangements and forward-looking charges.
The regulator says the reforms are necessary to reduce costs and enable new technologies to connect promptly to the power grid.
In a working paper released today (6 October), Ofgem said the current arrangements for network access pay little attention to the nature of the rights being granted.
“This means that there is no, or a poorly defined, choice of different access options available to fit users’ needs, and they provide only limited information to help identify where new network capacity is needed,” the paper states.
“The allocation of access is generally on a first come first served basis, with rights not readily tradeable or transferable. As a result, some users may be disadvantaged in seeking to get access to the system and capacity may not be being used efficiently.”
To alleviate these concerns, Ofgem has floated proposals to vary the duration and “firmness” of connection agreements to reflect the differing needs of users. The regulator is similarly considering offering agreements which are restricted to a specific geographical area: “This would mean that a user just buying this local access would only be able to trade with other participants in that local area of the network and not nationally”.
Access rights could potentially be traded as well, “allowing users to signal the value they place on different types of access and giving greater flexibility to adjust their capacity over time to better fit their needs”. This could perhaps be enabled by allocating capacity through a regular auction.
In a blog on the regulator’s website, published alongside the new working paper, Ofgem senior partner for energy systems Andrew Wright wrote: “Those that are happy to have their output curtailed at times of system stress could be offered cheaper access. Network capacity could also be traded, auctioned or transferred between users. This could lower the overall costs to all customers of the energy system.”
Ofgem is also mulling changes to the forward-looking network charges that are intended to pay for new capacity. The goal is to make the charges more focused on the drivers of investment, more reflective of the local situation for users and harmonised across all voltage levels.
The options include finding a new balance between fixed charges, volumetric charges, and capacity charges; varying charges according to time and location; and recouping a wider range of networks costs, for example, by covering alternatives to reinforcement such as active network management.
The paper additionally sets out proposals for how to accommodate new demand on the power grid from technologies such as electric vehicles, heat pumps and on-site generation.
“One option could be that customers pay a certain network charge to reflect their core capacity needs,” says Wright.
“If they want to use significantly more electricity at particular times to charge their electric vehicles or household batteries, for example, then they could choose to pay an additional fee. Or alternatively, they could agree to use a smart charger.”
Ofgem will publish a follow-up in December to identify which proposals are worthy of further consideration.
The document was released at the same time as an update to the significant code review on residual network charges which the regulator began in June. Ofgem is proposing to shift the responsibility for residual charges solely onto suppliers to prevent perceived market distortions. At the moment the charges are split between suppliers and generators.