Increasing competition? The role of the independent networks

The independent distribution network operators (IDNOs) and the independent gas transporters (IGTs) are rarely spoken of. However, with an ever-increasing need for more competition in the distribution network, could they hold part of the solution? Lois Vallely investigates.

The problem of anti-competitive behaviour among the networks was brought into sharp focus at the beginning of the year when Ofgem opened an investigation into SSE’s network business, after a review of the sector uncovered potentially anti-competitive behaviour in the electricity connections market, putting smaller rival companies at a disadvantage.

Distribution remains a monopoly business and, under the Utilities Act 2000, it is a licensed activity. Ofgem regulates the amount that both IDNOs and IGTs can charge their customers for using their networks via a relative price control, requiring companies’ charges to be capped for all customers at a level largely in line with the DNO and GDN equivalent charge.

Independents are regulated in much the same way as incumbents. However, IDNO licences do not have all the conditions of a regular DNO licence, meaning they don’t receive the same project funding from Ofgem which they are required to bid for – Network Innovation Competition – or justify as being spent on innovation – Network Innovation Allowance – like the DNOs have.

In an interview with Utility Week in May, Bill McClymont, chief executive of IDNO Energetics, reveals that his organisation has “suffered” in the past with anti-competitive behaviour from territorial incumbent DNOs. He says when competition was first introduced in 2005, it received a frosty response from incumbent DNOs, only about 8 to 12 per cent electricity connections were won by independents.

However, Ofgem introduced competition tests in the past couple of years, resulting in “quite a marked improvement”, with nearly 50 per cent of new connections now being won by IDNOs, and the Energy Networks Association (ENA) argues that competition in network connections has doubled in recent years.

Being smaller and free to build networks and make connections anywhere in the country gives the independents more flexibility to compete. And Ofgem suggests competition in distribution is on the up as a result: “Given the significant volume and value of this market, we would expect that effective competition could develop with the right conditions.”

An ENA spokesperson tells Utility Week: “IDNOs have an important role to play as part of an increasingly competitive networks sector. Some of the work on the infrastructure must be carried out by the regional DNO to protect the integrity of the network but we have seen a welcome growth of IDNOs and their activity.

“ENA represents the regional network operators and the independent companies too and we develop standards and safety procedures that are for the benefit of the whole industry as well as the customers they both serve. We welcome greater engagement from IDNOs in our work and with our members.”

GTC

GTC is an independent multi-utility infrastructure and networks provider established in 1995. It is the largest IDNO in the country and the only one to be a member of the ENA.

Independent Power Networks and the Electricity Network Company are both subsidiaries of GTC, which also owns IGTs Independent Pipelines and GTC Pipelines.

ESP Utilities

ESP Utilities owns ESP Electricity and ES Pipelines. ESP Electricity was established in 2003, the first IDNO to be awarded an electricity distribution licence in the newly deregulated market.

ESP develops and operates electricity networks, primarily for new build developments and the industrial and commercial market. They do not build assets themselves, but adopt them from construction companies.

Energetics

Energetics was established in 2006, following the deregulation of the utilities connections sector. The firm costs, designs, builds and connects developments to the utility (electricity and gas) networks.

Harlaxton Energy Networks

Harlaxton Energy Networks owns, operates and maintains electricity networks throughout the UK that provide a supply of electricity to a range of customers, through a network of underground cabling and substations at low voltage and high voltage networks.

Peel Electricity Network

Peel Electricity Network successfully applied for a distribtuion licence last year. The firm is a subsidiary of the Peel Group, one of the largest infrastructure, real estate and investment businesses in the UK.

Utility Assets

Utility Assets is the seventh IDNO to be awarded a distribution license by Ofgem. It claims to have been established to provide an “alternative option” for commercial and retail developers in choosing a network operator for their sites.

Fulcrum Pipelines

Fulcrum holds a gas transporter licence, which allows it to design, install, own, operate and maintain gas pipelines systems which convey gas to customers’ premises.

Indigo Pipelines

Indigo Pipelines was established by SSE as SSE Pipelines in 1992 and has, since, grown its network of connections throughout the UK. In 2014 it was bought by the Environmental Capital Fund, an infrastructure fund managed by Scottish Equity Partners.