DNOs to cover reinforcement costs for new developments

Distribution Network Operators (DNOs) will have to cover infrastructure upgrade costs when connecting new developments under rule changes set to come into force next month.

From 1 April, the way network operators calculate connection charges is set to change. These changes are outlined in Ofgem’s Access and Forward-Looking Charges Significant Code Review.

Under the current arrangement, developers are obliged to cover the costs of reinforcing the local electricity network to provide sufficient capacity to serve their new developments. This network reinforcement often involves upgrading substations or replacing cables.

The main change will see DNOs pick up these reinforcement costs as part of connecting new developments. Reinforcement costs will be recovered through the network charges that form part of all electricity bills.

Developers will still be charged to extend the network to the development site, but upgrades to the existing network will no longer be charged.

Engineering consultant Buro Happold claims the changes will fundamentally alter the economics of many developments. In one example, cited by Buro Happold, a client developing a new business park was facing a £30 million bill for connection to the local network and the reinforcement work required to increase the network capacity. Under the new rules, the total initial outlay could drop to just £5 million after reinforcement costs are removed.

Chris Glover, director of utilities and energy at Buro Happold, said: “These Ofgem changes could enable a new generation of low carbon development in England and Wales, removing one of the roadblocks on the route to Net Zero by 2050.

“UK energy infrastructure needs significant urgent investment. Our electricity network is struggling to keep up with demand, and in some areas the congestion is so severe that the headroom is exhausted.

“Added to this, the increased demand from property developers, investors and clients for low carbon renewals and the pressure to meet net zero targets, is creating a considerable challenge.

“So, these reforms have the potential to be a real game-changer. While it won’t necessarily speed up the connection process as reinforcement works still need to be carried out, developers could achieve significant savings.”

However, a spokesperson for Northern Powergrid said that despite the changes it “will not impact the majority of customers”, as the majority of connections do not require reinforcement work.

The spokesperson added: “There is no guarantee that a connection application received on or after 1 April 2023 will be cheaper than one received before this date as there are a number of factors to be applied in line with the Ofgem decision.”

A spokesperson for the Energy Network Association added: “These are important changes which will make it easier for low-carbon technology to connect. This is yet another step towards net zero. We have been working with Ofgem and others in the industry on these changes, which will apply to connection applications from 1 April.”

An Ofgem spokesperson said: “These changes will spread the cost of connections fairly amongst all network users.

“They will also help bring forward the investment required to build an energy system that provides greater access to homegrown, clean and affordable energy for consumers and meet the growing electricity demand that is envisaged with decarbonisation.”