Solving the connections conundrum

The high number of renewable projects looking to connect to the distribution network and the dwindling amount of capacity left to hand out is creating problems for both distribution network operators and distributed generation developers.

DNOs are faced with undertaking costly reinforcement and extension of their networks to meet demand, while developers occupy precious capacity with projects that progress at a snail’s pace, if at all. They are also required to issue quotes for projects regardless of how likely the project is to be completed.

Equally the huge costs associated with reinforcing the network can often be the deciding factor in whether a development goes ahead or not, with many potential connection customers saying they were unaware of the options open to them to avoid, reduce and spread the cost of reinforcement which would potentially allow the project to go ahead.

But now connections are getting serious with new rules and options being put forward. Ofgem consulted in September last year on a range of actions that could be taken by DNOs to improve the situation for both sides, including making developers more aware of “flexible” connections, and ways of managing the connections queue better. Some of the options being considered will effectively give DNOs a “get-out clause” from any connection contract to help free up space. Last week Ofgem released an update on progress already made by DNOs against the actions, and a range of steps, such as an upcoming consultation by the Energy Networks Association (ENA) on the introduction of milestones, that are to be taken over the coming months as the industry moves towards a more efficient model for awarding connections.

Ofgem said it “welcome[d] the progress already made” but much further work is still required to improve the issue.

Freeing up connection capacity

Ofgem said that connecting customers will benefit from a regime that allows DNOs to withdraw and reallocate capacity from one customer to another when that capacity is not being used.

A method Ofgem has proposed is to introduce “milestones” into the contract which developers holding connections would be required to hit, or face the prospect of losing the capacity. Ofgem said: “We understand that this is not a straightforward issue, and DNOs would benefit from a common set of principles to underpin these milestones”. Accordingly it has asked the ENA to consult next month on a set of high level principles it put forward to Ofgem in December.

The principles include early milestones, applicable before a project has received planning permission, which would be “enforced more rigidly”, and more flexible milestones later in the project. Ofgem has set a timeline of the end of June 2016 for the introduction of the milestones.

Moves have already been made to give DNOs more powers to free-up capacity, such as a modification approved in July last year which allows DNOs to proactively approach customers who are underusing their capacity for long periods of time.

However Ofgem also asked the ENA to look at other ways of allowing DNOs to withdraw capacity. Ideas the ENA has put forward since September include using the modification to suggest a reduction to customers and using powers under section 17 of the Electricity Act to take away unused capacity.

Reducing the pipeline

The ENA has put forward the concept of reintroducing assessment and design fees in an effort to tackle the issue of customers making multiple connection requests to find the cheapest option, all of which DNOs are obligated to provide, by reintroducing assessment and design fees.

Fees were dropped by DNOs after Ofgem indicated that the Electricity Act might not allow DNOs to request any payment from customers before they had accepted an offer.

A spokesperson for the ENA said: “Unless this anomaly is addressed, this issue will limit the connection opportunities for non-speculative applicants. In 2014 the ENA submitted a proposal to the Department for Energy and Climate Change (Decc) that assessment and design fees be allowed to reflect the costs that they face in processing them. This has support from the distributed generation community and we look forward to Decc’s consultation on this.”

Ofgem said the proposal could “ free up DNOs to improve the quality of ‘genuine’ quotes issued and avoid situations where remaining spare capacity on a network is allocated to projects that may never proceed” and said Decc intends to seek further evidence on the issue.

At the other end Ofgem also recognises the difficulty some customers, particularly smaller community schemes, have in financing the projects and has encourage DNOs to offer flexible payment. It asked each DNO to publish the availability and criteria for flexible payment terms by December 2015.

Spreading and reducing the cost of connection

Customers want to secure connections, but they want to do it in the quickest and least costly way possible. One of the ways to achieve that is by allowing “flexible” connections to the grid. Customers are allowed to join the network even though the requested capacity exceeds peak limits by agreeing to being constrained when the network nears its capacity limits.

Even though this option could be appealing to developers, many told Ofgem that flexible connections are not always offered in some network areas, and if they were offered customers were not “always aware that a flexible connection offer might be available”.

Another option open to developers is to form a consortium with other developers to avoid being burdened with the entire cost of reinforcement when the need is unavoidable. Although Ofgem said it realised a consortium approach is “not practical in all situations” it also said that DNOs should “encourage and facilitate the establishment of consortia where appropriate”.

To this end all DNOs have made information on alternative connections more readily available, or have pledged to do so during 2016.