“Project cancellations” amid Ofgem grid charging concerns

The existing charging mechanism employed by Ofgem for supergrid transformer reinforcement is leading to project delays and cancellations due to financial uncertainties faced by investors, according to developers

Ofgem‘s existing charging mechanism for supergrid transformer (SGT) reinforcement has come under scrutiny due to its impact on “project delays” and “cancellations”, which are attributed to funding uncertainties for investors.

In an open letter directed at Ofgem,  independent grid consultancy Roadnight Taylor has called for greater attention to be given to the urgent need for a more appropriate charging mechanism for supergrid transformers.

The consultancy said the expenses related to reinforcing supergrid transformers are divided between socialising the costs and billing them directly to distribution customers.

This is causing unfair charging in different parts of the country and making it hard for investors to fund projects, leading to some of them being delayed or cancelled, according to Roadnight Taylor.

The consultancy firm has proposed three suggestions to improve the current situation:

  1. Socialising all supergrid transformer (SGT) reinforcement charges through Transmission Network Use of System charge (TNUOS).
  2. Socialising all SGT reinforcement charges through Distribution Use of System (DUOS).
  3. Allowing distribution network operators (DNOs) to use a CAF approach for SGT reinforcement charging while passing on the charges to triggering distribution customers.

Hugh Taylor Chief Executive Officer of Roadnight Taylor commented: “Roadnight Taylor and Ofgem alike recognise the worsening situation and we appreciate that they have promised further work.

“However, the urgency of the issue should not be understated, with many investors unable to accept the funding risks created by the current situation.

“There are an increasing number of distribution customers now facing SGT reinforcement charges, but Ofgem still have an opportunity to help prevent this and make needed changes.

“Socialised SGT reinforcement charging would allow network operators to be more strategic, would reduce connection costs for distribution customers, and would therefore better facilitate meeting net zero targets.”

An Ofgem spokesperson responded to the concerns, stating “We recognise the challenges regarding grid connection waiting times and are working closely with both the industry and government to address the issue.

“We launched a major review of this earlier in the year and are currently considering all responses and will shortly be setting out an action plan jointly with the Department for Energy Security and Net Zero in the Autumn. We will respond to this letter in due course.”

In May, in an open letter, Ofgem said: “Our objective is to see electricity connection offers with shorter average connection dates which better meet customers’ needs and enable a timely transition to net zero.

“Considering the scale of the challenge, we will consider whether substantial changes to the current connections queue methodology are required and how changes are applied to both new applicants and those parties already in the queue with a connection agreement, while ensuring progress can be made quickly.

“This review will sit alongside existing government and industry initiatives.”

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