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Ofgem’s Significant Code Review – What does it mean for you?

11th August 2021

Ofgem is undertaking one of its biggest-ever overhauls of network charging.  This has major implications for companies seeking to connect to, or upgrade existing connections, to the grid.

Known as the Network Access and Forward Looking Charges Significant Code Review (SCR), it aims to make it easier to reinforce the electricity grid.

This is to meet the expected increases in demand as fossil fuels are replaced by renewable electricity as part of the UK’s drive to achieve ‘net zero’ by 2050.

The SCR is looking at changes to the way that distribution network operators (DNOs) provide new connections or upgrades to end-users including both consumers and embedded generation.

The biggest impact is likely to be a change in the way that new connections are costed. Currently, a customer wanting a new or upgraded connection may have to pay for upstream reinforcement work that could prove prohibitive. However, future reinforcement work is likely to be shared amongst all users.

The review is also considering ways that businesses that consume energy in different ways throughout the day and over the year can have more flexible connection agreements. The likely outcomes of this review are:

 

  • The SCR is likely to increase Distribution Use of System (DUoS) charges. It could add an estimated £350 million annually to DUoS charges nationally, that’s an increase of over £1/MWh.
  • Some new connections and upgrades will be cheaper. If you have a pending project with a prohibitive connection quote or cost, then this may be a reason to delay. However, there’s no guarantee that you will be first in the queue for any connection work when the changes come into force.
  • Businesses that have daily, seasonal or flexible demand profiles may see benefits.

 

The changes are expected to be in place by 2023/4 but this date may slip.

The proposals have now opened for consultation, giving us a better view of the changes planned. The deadline for responses is 25th August, 2021.

What is changing for embedded generators?

The proposals are further bad news for embedded generators, who have seen a gradual erosion in so-called embedded benefits in recent years, and more is expected for these generators when changes are applied to the way that BSUoS will be charged.

Whilst generators in the south of England and Wales may continue to receive some embedded benefits after the SCR, there is a real risk that generators in the North of England and Scotland may start to see some additional charges associated with DUoS.

Why is it happening?

One of the biggest challenges faced by DNOs is increasing congestion on distribution networks in certain areas. High levels of both generation and demand are pushing electrical infrastructure towards its safe limits. This can see many proposed energy projects, both demand and generation, being turned down over concerns they will put their local network under undue strain, risking disruption to power supply.

Ofgem is looking to streamline the process of establishing new connections to a distribution network, which will see distributed generation brought into line with larger transmission generation. This should make new connections cheaper upfront, as well as potentially helping to unlock generation projects in areas with constrained grid capacity.

Distributed generators’ contribution to network reinforcement, previously charged as part of their initial connection charge, will also be reduced.

For demand customers, this will be removed entirely. This is intended by Ofgem to better balance distributed generation and open up more opportunities for the roll-out of low carbon technologies. For example, it will remove barriers to electric vehicle (EV) charging and heat pump installations, lowering the cost and supporting the move to ‘net zero’.

These proposals remain open for consultation and thus could still change. However, if approved, as currently looks likely, with a decision by Ofgem due shortly after, they will come into force from 1st April 2023.

This could leave a tight timescale for generators and proposed distributed generation schemes to adapt.

For further details on how this could affect you and to enable you to make better operational and investment decisions, please contact us on 01253 785294.