UKPN claims its separate DSO delivered £199m of benefits over first year

UK Power Networks’ distribution system operator (DSO) delivered £199 million of net benefits to customers over the first 12 months following its establishment as a legally separate entity in April last year, the company has claimed.  

Of the total, £91 million came from the use of the flexibility services to avoid or defer distribution network reinforcements, £106 million came from the use of the flexible connections to avoid or defer transmission or distribution network reinforcements, and £2 million came from reduced carbon emissions.  

In its first annual DSO report, UK Power Networks (UKPN) said it expects these figures to rise to £410 million, £277 million and £146 million respectively – or more than £1 billion in total – over the whole of the RIIO ED2 regulatory period ending in 2028.  

UKPN said any savings from flexibility services will be returned to customers, stating: “Unlike other DNOs, this saving is assumed within our RIIO ED2 settlement and is not subject to a 50% sharing factor. This means 100% of these savings flow to bill-payers rather than shareholders.” 

Speaking to Utility Week, UKPN’s DSO director Sotiris Georgiopoulos said the company “pre-baked” flexibility benefits into their business plan “because this is core to our strategy,” adding: “We could have asked for 10% more allowances but we didn’t because we said we’re going to set up an independent DSO that’s going to deliver these benefits for consumers.” 

UKPN said it dispatched 7.8GWh of flexibility over 2023/24 – a seven-fold increase over the year before – and awarded contracts for more than 1.5GW, including to 14 new providers.  

As part of the separation of its DNO and DSO operations, UKPN established a DSO supervisory board, which first met in May last year, to scrutinise and challenge its decisions.  

Michael Walsh, chair of the board and managing director of Springergy, said they reviewed £470 million of potential network investments across more than 400 projects. In most cases, UKPN were already planning to address the need in question using flexibility.   

However, Walsh said there were 32 planned network reinforcements “where it looked like it might be a bit more unclear and we asked the team to go back and do some additional analysis,” he added. “That led to about a three to four week delay in the process and the sign off where the team went back to look at those projects in more detail to investigate.” 

Of those 32 projects, Walsh said they eventually decided that 21 could actually be deferred or avoided, saving an additional £81 million for customers. He said these challenges generally concerned whether or not there was sufficient time for UKPN to attempt to procure flexibility before the need for capacity materialised.  

Georgiopoulos, who also sits on the DSO board, said: “There were a number of projects where it was the third time we were trying for flexibility and we could see the demand increasing”. 

Walsh said there were also a few instances where UKPN was able to find other network engineering solutions: “This area here needs new capacity, but the neighbouring one has a bit of spare capacity and if we just change how a few people are connected or open a few switches, we can buy ourselves a bit of time.”  

UKPN said it was able to connect 11 projects via flexible connections in areas with transmission constraints, saving these customers £93 million in reinforcement costs in 2023/24, and four projects with flexible connections in areas with distribution constraints, saving these customers £13 million. In the case of the latter, the company said their connections were accelerated by between four and eight years.  

Commenting on the separation of UKPN’s DSO functions, Walsh said: “We do see with a lot of traditional networks around the world, they have been accused of over building and that their first answer as soon as they see any forecast demand growth is to start spending an awful lot of capital.  

“And that whole dynamic was part of the reason for setting up an independent DSO – to try and break that cycle of being quite conservative in the engineering and that leading to more costs for consumers.”  

In its second year, Walsh said the supervisory board wants to focus more on whole system benefits: “When you start looking at whole system benefits, you’re looking at what’s the right answer for everyone and for the full system, rather than just one part of it. We want to keep pushing and going deeper into that over the coming years.”  

Update

Since this story was originally published, UKPN has provided further information to Utility Week regarding how it calculated the benefits from flexibility services in 2023/24.

The company said the figure represents the cost of the network reinforcements it would have undertaken during the year but decided to defer, minus the costs it incurred during the year to instead procure flexibility services.

The company said all of these network reinforcements were assumed to be deferred, rather than avoided entirely. Since it awards flexibility contracts for periods of up to three years, UKPN said it is assuming that most of these reinforcements will be deferred for at least three years.

In instances where it claimed benefits for deferring investment at a site, but later decides to undertake the reinforcements, UKPN said the impact of this decision will be reflected in the claimed benefits for that year, which will be reduced accordingly.