Ofgem’s lack of urgency on reforming DUoS charges is ‘extremely alarming’

Charges for the use of electricity distribution networks must be reformed to prevent them being overloaded by customers looking to take advantage of cheap renewable power, an industry figure has warned.  

Alex Schoch, head of flexibility at Octopus Energy, said distribution network operators (DNOs) will be unable to prevent this from happening using flexibility tenders alone. He described Ofgem’s “lack of urgency” in addressing this emerging issue as “extremely alarming”.  

Octopus Energy has been working with UK Power Networks (UKPN) to develop a solution to the problem through an innovation project named Shift 2.0, which involves more than 1,500 electric vehicle chargers.  

As part of the trial, UKPN has been sending day-ahead time-of-use price signals to Octopus Energy and ev.energy that reflect the capacity available on its network in the locations where the chargers are connected. Octopus Energy and ev.energy have then combined these signals with half-hourly wholesale power prices and scheduled the charging of the electric vehicles to minimise the cost to consumers. 

Schoch said there are currently around 160,000 electric vehicles being charged on its smart time-of-use tariffs. He said getting these vehicles to charge in response to national wholesale power prices is “complicated but not super hard.”  

He said it’s a lot more difficult to also segment these vehicles into “geographic pockets,” subject them to different network price signals and schedule their charging accordingly: “That kind of software optimization and fleet management is hard.”  

Over time, Schoch said this will become increasingly necessary to prevent local electricity networks from being overloaded due to “herding” behaviour by smart energy devices responding to national wholesale power prices.  

As part of the trial, Octopus Energy identified a period in April this year during which electric vehicles on its Intelligent Octopus Go tariff began charging during the early evening due to an abundance of cheap wind power. This is usually the time of day when local electricity networks face the greatest demand for capacity.  

Schoch said this will start to happen more often in future and that herding could even lead to networks becoming congested outside of the usual periods of peak demand.  

Alex Howard, head of flexibility markets at UK Power Networks, said: “We’re already harnessing the flexibility of electric vehicles to keep the cost of the network down. But as renewable power grows and vehicle charging is increasingly automated, we need to stay one step ahead. The findings of this collaboration will be important in showing how flexibility can evolve to deliver sustainable value to local and national energy systems.” 

He said the dynamic price signals provided through the trial will complement those from its existing flexibility tenders.  

Schoch said DNOs will not be able ramp up these tenders quickly enough to prevent local electricity networks being overloaded due to herding. He said low-voltage networks are “bearing the brunt” of the exponential growth in demand from devices such as electric vehicle chargers and heat pumps, which is often clustered around particular substations.  

Schoch said distribution use of system charges (DUoS) instead need to be reformed to provide dynamic price signals that reflect the capacity available on local electricity networks at different times and locations.  

However, Schoch said Ofgem has shown a “lack of urgency” when it comes to addressing this issue, which he described as “extremely alarming”. He compared the current situation to “standing on the tracks” and “watching the train come at you”.  

Referencing a similar trial Octopus Energy is conducting with Scottish and Southern Electricity Networks, Schoch said: “It is definitely a concern of ours and we wouldn’t have two DNOs working on this with us if it wasn’t also a concern for them.” 

“The reality is that there’s so many parts of the network where reinforcement is required that I do worry that even with going pedal to the metal on issuing more flexibility tenders, you will just get to a point where consumers will not be allowed to connect an EV charge point at their home or at their office because of the overloading of a substation,” he remarked.  

Ofgem is exploring reforms to DUoS charges through a dedicated significant code review (SCR) which was spun-off from a previous SCR covering network access arrangements. The DUoS SCR was put on hold from November 2022 to April 2023.  

In an update in March, Ofgem said it will not begin looking at longer-term changes to DUoS charges, including increased locational and temporal granularity, until later this year.  

Schoch said there are some “positive tailwinds” in that DNOs are already making progress in rolling out the real-time monitoring of low-voltage networks that will be necessary to implement dynamic DUoS charges.