Ofgem has launched a consultation on network charging arrangements ahead of a major review. Everything is in the frame, from all aspects of distribution and transmission charges, to behind the meter generation, battery storage and private wire networks.
Ahead of a so-called Significant Code Review, via which it could implement sweeping changes to market rules around network charges, the regulator seeks views on potential solutions to make cost recovery more reflective and prevent ‘haves’ benefitting at the expense of ‘have nots’.
Ofgem says part of the review will focus on levelling the playing field for storage operators, which currently face double charging issues. However, the main focus of its proposed review is on the means of recovering residual network charges from network users, i.e. sunk costs. The regulator believes the behaviour incentivised by the current charging arrangements is distorting the market and risks driving up consumer bills.
However, Ofgem left room not to take action if its review concludes that changing the current regime would be detrimental to consumers. Similarly, the regulator reiterated that it may not implement changes to Triad payments, as outlined in a ‘minded to’ decision earlier this month, which dismayed those representing small generators and businesses which would stand to lose significant revenues.
Haves and have nots
However, Ofgem repeated that it thinks the current arrangements will result in householders and businesses without on-site generation picking up a higher tab, despite not actively driving up network costs.
It says that situation is driven by those with embedded generation earning revenues by allowing energy suppliers to avoid peak costs by acting as negative demand, while not actually reducing the amount of revenue that needs to be recovered via residual charges. As more small scale generation is connected to the system, the risk is that distortion, and therefore costs to some consumers, could spiral, argues Ofgem.
Behind the meter and ‘off grid’
Although Ofgem said it has “no wish” to prevent firms with onsite – or behind the meter – generation making use of that generation reduce costs, “the current residual network charges may distort decisions to install generation behind the meter, and as a result lead to higher residual charges for other users”.
Likewise private wire networks. The regulator said its initial view “is that all users who are connected to the licensed networks should make some contribution to common costs”.
In the consultation, Ofgem outlines potential options for network charges, as well as examples from other countries as to how they might be implemented. It seeks industry views on a broad range of questions relating to network charge recovery, treatment of batteries, behind the meter assets and private wires and says answers will inform how and whether it proceeds with a Significant Code Review.
However, as that review would take at least 18 months to conclude, Ofgem said it may make some rule changes in the meantime.
See the consultation here.