DNOs propose £23bn spend over ED2

All six electricity distribution network operators (DNOs) across Great Britain have now submitted their draft business plans for the RIIO-ED2 price control to Ofgem.

Total spend requested across the business plans amounts to £23.2 billion.

The networks are not required to publish their plans more widely at this stage, however all have now released some information publicly. Western Power Distribution and Electricity North West both revealed working drafts of their plans earlier this year.

Northern Powergrid

Northern Powergrid has proposed total expenditure (totex) of £3.2 billion between 2023 and 2028, which equates to £624.1 million per year. This is up 36 per cent on the average for ED1, with a 5 per cent increase in customer bills.

The DNO, which covers 3.9 million homes and businesses in the North East, Yorkshire and northern Lincolnshire, has identified 12 output areas across its business plan. Three of these account for 87 per cent of the total costs – asset resilience (33 per cent), decarbonisation (30 per cent) and reliability and availability (24 per cent).

Total network investment costs are pitched at £1.65 billion for ED2, which is on average 69 per cent higher than in ED1. Load-related expenditure is set to increase by 420 per cent from ED1 to £645.5 million, while non-load related asset renewal costs are proposed to increase by 3.3 per cent to £634 million.

The DNO is asking for £630 million in network operating costs – a 2.6 per cent rise on the average in the current price review cycle.

Northern Powergrid stresses in its business plan that it is adopting a “flexibility-first” approach to decarbonisation. To this end its strategy is to “monitor – manage – reinforce”. In the first instance it plans to leverage investment in monitoring to provide visibility of capacity constraints. This will the lead to deploying smart grid solutions and contracting customer flexibility (either directly or indirectly). The company stresses that only after exhausting these first two steps would it seek to build additional capacity.

The plan includes £87 million for its distribution system operator (DSO) strategy, including £21 million for LV monitoring, and a further £16 million for enabling whole systems solutions.

The business plan points to £396 million of totex efficiency savings embedded in the plan.

Phil Jones, Northern Powergrid’s chief executive, said: “We are setting out our intentions as one of the leading investors in the region’s transition to net zero. We see it as a fantastic opportunity and a significant responsibility. Our network will be instrumental in the shift to low carbon energy and we are responding to the calls from our stakeholders to invest in the network technologies that will make it all possible.

“This is not more of the same – we’re going to create the low carbon network of the future at the same time as improving service levels across the board. That means significant change in the way we do business. We need to learn new skills, create new job opportunities in the region and make the most of innovation, particularly in the area of data and digital technology.

“It’s hard to think of a better example of building back better. Over £3 billionn of investment in the region that delivers real action on climate change and more skilled jobs – on top of improved services in every area of our business. Our proposals help set the region firmly on the pathway to strong, decarbonised regional growth – delivering prosperity and leading the way to net zero.”

UK Power Networks (UKPN)

While the other DNOs have released a fully costed business plan, so far UKPN has so far only published an executive summary.

Its plan sets out a number of different totex scenarios, with a baseline plan of £4.5 billion over ED2 (a 7 per cent rise on ED1) but potentially rising to £5.6 billion through uncertainty mechanisms. This highest case scenario is based on the Climate Change Committee’s widespread engagement pathway. The baseline scenario works on an assumption that customers will change their behaviour to support decarbonisation, for example by taking up smart charging. This model assumes that by 2028, 2.6 million electric vehicles and 300,000 heat pumps will be connected to its network.

The plan stresses that it is impossible to accurately predict the rollout of low-carbon technologies (LCTs), pointing out that only 20 per cent of the LCTs forecast for ED1 have actually materialised.

It adds: “This lower than forecast take-up has resulted in a combination of customers paying for investment that was not required and owners of regulated network businesses earning greater than expected returns, both damaging the legitimacy of the sector.”

UKPN predicts a real terms decrease in customer bills over the five years in any of the scenarios, of 10 per cent for the baseline and 4 per cent at the highest case.

It says that at the heart of its plan is the establishment of “the UK’s first independent DSO”, which it said would lead its work to facilitate the transition to net zero. It believes this will ensure “transparency of investment decision-making and ensure that the lowest cost solutions overall for customers are adopted”.

The plan commits UKPN to working with stakeholders to develop a DSO-DNO code that will “clearly and unambiguously” set out the respective roles and processes.

It adds: “Our DSO will operate very differently to a traditional DNO. We will bring in new skills, people and systems for a business unit that will be highly technology, data and customer focused. Importantly, it will signal transparency and independence of investment decision making in the best interests of consumers. “

UKPN chief executive Basil Scarsella said in his introduction to the plan that the company intended to “walk the talk” by committing to achieve net zero in its own operations by 2028. Its approach has already been verified by the science-based targets initiative.

The plan also commits to establishing a dedicated team to work with local authorities to develop local area energy plans.

It proposes “innovative approaches” to help unlock public on-street charging, which it claims will increase the current levels of on-street public chargers by 25 per cent.

The company has also pledged to create £67 million worth of benefits to support customers experiencing fuel poverty.

Scarsella said: “The 2020s will be a decade of transformative change in the energy system and in our society, as we decarbonise every aspect of our economy, and a time when net zero becomes real for millions of our customers. It will bring major change to the lifestyles of people and communities; from the way we refuel our vehicles to heating our homes and using energy wisely.

“That is why we have undertaken our most extensive ever consultation and engagement exercise, responding to what more than 26,000 people have told us and creating a business plan with customers and communities at its heart.”

Scottish and Southern Electricity Networks (SSEN) Distribution

SSEN is requesting totex of £4.1 billion over the five years – a 36 per cent increase over an equivalent timeframe in the eight-year ED1 cycle. SSEN stresses that the increase should have no impact on the amount customers are charged, due to its proposed 0.5 per cent year-on-year efficiency gain for ED2 and other embedded efficiencies.

More than half of the requested expenditure – £2.2 billion, or 53 per cent – is earmarked for network resilience and safety. This includes £1 billion in strategic resilience and £235 million on ensuring the safety of its teams and the public.

SSEN plans to spend £90 million on ensuring the resilience of high voltage (HV) and low voltage (LV) underground cables in the context of climate change. It has also proposed £23.5 million to further scale up automation, with a plan to upgrade 450 circuits.

Just over £1 billion in the plan is allocated to accelerating net zero, with allowances for further funding through uncertainty mechanisms. This would see £542 million invested in the network to support the connection of an estimated 1.3 million electric vehicles and 800,000 heat pumps across SSEN’s patch, which covers central southern England and the north of Scotland.

However, the plan makes clear that flexibility will be at the heart of the distribution system of the future and therefore requests £75.1 million for investment in delivering the distribution DSO role.

A further £369 million is requested for delivering a “valued and trusted service” for customers and communities, including increasing support for vulnerable customers, with an expectation of helping 200,000 households. The bulk of the allowance (£267 million) in this section of the business plan would go towards digitalisation and improved telecomms services.

The plan also includes £544 million for general running costs.

SSEN has pledged to reduce the frequency and duration of unplanned power interruptions by 20 per cent over ED2, as well as achieving a satisfaction score of 9.2 or more in every customer contact area and to reduce its carbon footprint by at least 35 per cent.

SSEN Distribution managing director Chris Burchell said: “The need to transform our energy system to address the climate emergency has never been clearer and it is critical that local electricity networks are an enabler rather than a constraint as we work toward a shared net zero future.

“Co-created with our stakeholders, we have developed an ambitious and balanced business plan, which provides more, efficient investment today to meet the net zero challenge, while also keeping bills down for current bill payers and supporting those most vulnerable with the challenges of here and now.

“There will inevitably be a degree of uncertainty in the years ahead as energy policy and targets continue to accelerate, therefore it is essential that Ofgem supports us by providing an agile regulatory framework that helps deliver a network where customers can switch to EVs and other net zero technologies with ease at a time they choose.”

SP Energy Networks

SP Energy Networks has requested totex of more than £3.2 billion – representing a 28 per cent increase in annual spending when compared to the ED1 price control to £647 million.

The total includes £430 million of load-related expenditure, of which £347 million is for network reinforcement, £602 million of spending to replace and refurbish assets, and £509 million of network operating costs.

The company, which currently operates 105,000 kilometres of network and 30,000 substations, says it plans to install over 800 kilometres of new cables, build 700 new substations and create more than 1,100 new jobs.

The business plan incorporates £84 million of embedded efficiencies that have already been proven during the current price control, £29 million of ongoing efficiencies and £84 million of efficiencies from innovation.

SP Energy Networks has also proposed to spend £111 million on environmental programmes and create a £30 million Net Zero Fund to support innovative, low-carbon community energy projects.

Within its license areas, the company expects to see 370,000 domestic heat pumps installed, 670,000 electric vehicles hit the roads and 5GW of additional low-carbon generation connected to its network over the five-year period.

Its average annual contribution to the typical household energy bill is forecast to fall from £102 to £90 for customers in the south of Scotland but rise from £122 to £131 for those in the north west of England and North Wales.

Chief executive Frank Mitchell said: “This is the most ambitious plan we have ever built, informed by over 15,000 engagements with customers and stakeholders.

“It’s also, perhaps the most important plan we have ever produced, developed at a time of profound change. The challenge that will touch every part of our society is to halt the effects of climate change. To do this, we need to achieve net zero carbon emissions.

“Our electricity distribution system will face the biggest changes to its design and operation for over half a century. Distribution networks were designed for predictable, stable demand. With Net Zero, electricity demand, generation, and consumer behaviour, will all change.

He continued: “When the current infrastructure was built, homes used gas or solid fuel for heating with only twenty appliances running on electricity – compared to more than fifty now. Over the next two decades, we expect to see that demand rise significantly, as millions more electric vehicles and heating systems come online.

“Our network has served us well over the last fifty years. Now is the time to invest so it stands ready to continue that service in a truly decarbonised future.”

Western Power Distribution

The operator for the Midlands, South West and South Wales has already published two iterations of its draft business plan.

Each version of the plan has included an uplift in the totex requested, with the latest asking for £6.2 billion over the give years – an 18 per cent increase in average annual expenditure for ED1.

As revealed in the second draft of its plan, WPD has committed to becoming a net-zero business by 2028.

The expenditure requested includes £1.1 billion of network operating costs and £595 million for reinforcement of the network. A further £1.7 billion is proposed for non load related investment, with the bulk of this (just over £1 billion) targeted at asset replacement. The plan also asks for £1.2 billion for engineering management and £850 million for upgrading IT and telecoms.

The plan includes 45 core commitments, covering priority areas such as customer service, vulnerable customer support, the delivery of a safe and resilient electricity network, net zero, community energy and flexibility markets.

WPD’s chief executive Phil Swift emphasised the “unrivalled levels of transparency” in the process of drawing up the plans. He pointed to an increase in the ambition of 60 per cent of commitments in response to feedback.

He added: “The message from our customers has been clear – the world we live in is changing, and WPD must be forerunners in delivering a sustainable future for generations to come.  We understand and share these ambitions and have risen to the challenge. But these are not empty promises. Every single commitment has been carefully considered; we know that we can achieve them and we will report annually to provide updates on our progress.”

Electricity North West

ENW also produced an early version of its draft business plan to gauge stakeholder feedback. Like WPD, this has resulted in a slightly higher totex figure, up from £1.9 billion to £2.033 billion. However, the network stressed that the expected impact on bills had now been revised down from a £2.14 annual increase to £2.03.

The revised costs equate to a 53 per cent rise compared to ED1.

ENW intends to spend £502 million on replacing and refurbishing network assets and £300 million on maintaining and repairing the network.

ENW chief executive Peter Emery said: “Publishing an early draft of our plan earlier this year was a new step for us and was very useful in securing even more valuable feedback into our plans for much of the next decade.

“Our challenge during that time is a huge one: achieving stretching net zero and environmental ambitions, while keeping bills low and making sure we don’t leave anybody behind so everyone can benefit.”

“Yet it’s thanks to the feedback of thousands of people and organisations across the region, and a lot of work on innovation and efficiency, that we have been able to find a way of doing that while only increasing the average household bill by less than the price of one high street cup of coffee each year.”