Ofgem to unlock funding for DNOs to install EV chargepoints

Ofgem has proposed to create a new funding mechanism to enable distribution network operators (DNOs) to act as a Provider of Last Resort (PoLR) for electric vehicle chargepoints.

In its draft determinations for the RIIO ED2 price controls, the regulator noted that DNOs’ licence conditions already permit them to install and operate electric vehicle (EV) chargepoints in instances where it is satisfied that no one else can do so “at a reasonable cost and in a timely manner.”

However, Ofgem said there is currently no funding mechanism in place to enable DNOs to fulfil the PoLR role as to date it has not yet been invoked.

The regulator said there may be a need for DNOs to act as a PoLR during the ED2 period and it is important these activities are adequately funded as “even in areas where it is not yet commercially viable for market participants to enter, we want EV chargepoints to be installed so that no communities are left behind as we transition to a decarbonised transport system.”

It said the funding mechanism should not incentivise DNOs to turn EV chargepoints into profit-making infrastructure as this is not consistent with the intention of the relevant licence condition which positions DNOs as neutral market facilitators.

Ofgem said it is therefore considering two possible funding mechanisms for PoLR costs: a pass-through mechanism, whereby DNOs can automatically pass-through any revenues and costs it has incurred to consumers; and funding as a Directly Remunerated Service, whereby net losses (or profits) are added to (or subtracted from) allowed revenues.

The regulator said these mechanisms would both ensure that EV chargepoints, which should not remain within DNO ownership for long periods of time, do not become part of their regulated asset bases.

It said they would also be appropriate as the revenue that DNOs earn from the operation of EV chargepoints will largely be driven by external factors which are outside their control such as national and local government policy and local socio-economic factors.

Ofgem said its preferred option is to fund POLR activities as a Directly Remunerated Service.

Commenting on the proposals, Polly Billington, chief executive of the UK100 network of local government leaders, told Utility Week: “I think it’s important that Ofgem has recognised that the lack of charging infrastructure is a big barrier to people making the switch to electric vehicles.”

“Electric vehicles are vital for accelerating Net Zero progress. But while the people of Oxford welcome Europe’s most powerful charging hub, residents in Southend can count on one hand the number of charging stations available to them.

“The situation is pitifully and unsustainably inequitable. It’s why it makes sense that Ofgem is asking — and backing — distribution network operators to step in to support an improved geographical spread of charging stations.”

However, Billington said she has doubts over the regulator’s proposals to address the issue: “While there is clearly a need for better policy machinery to deliver electric vehicle charging, and it makes sense for DNOs to play their role, I would question — and will raise with Ofgem — why they should be the provider of last resort rather than be a part of a proactively planned approach — in collaboration with local leaders.”