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Electricity Connection Charging Boundary Review

This document discusses the review of the connection charging boundary, addressing the distinction between connection charges and ongoing use of system charges, impacting assets and costs. It highlights the current boundary regulations, guidelines issued in 2004, principles for cost apportionment, and proposed approaches for improvement. Key questions include defining connection versus reinforcement, ensuring clarity in cost allocation, and maintaining cost reflectiveness. The principles aim for a fair, simple methodology consistent across all LDNOs. The text emphasizes the need for thorough consideration in amending the charging boundary and proposes steps for future discussions and recommendations to Ofgem.

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Electricity Connection Charging Boundary Review

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  1. Connection Boundary Review • Network charges comprise Connection Charges and ongoing Use of System (UoS) charges. • The Connection Charging Boundary is the boundary between those assets paid for by Connection Charges and those paid for in UoS. • Any review of the connection boundary must consider both aspects. • Current guidelines were issued in April 2004 prior to DPCR4 for implementation in April 2005. • These moved the connection charging boundary deeper in the case of Demand and shallower in the case of Generation. • Changes to the Connection Charging Boundary can only realistically be agreed as part of price review process. • Any changes need to be agreed by April 2009.

  2. Current Boundary • Costs required to connect are chargeable in full. • Electricity Connection Charge Regulations (ECCR) apply. • Costs required to reinforce the existing distribution network are apportioned. • Security Factor Required Capacity • New Network Capacity • Fault Level 3 x Fault Level Contribution • New Equipment Fault Level Capacity • Second comers also pay for previous reinforcement. • Issues (for discussion) • What is connection and what is reinforcement? Is the definition clear? • In the cost apportionment factor the numerators are based on the increase whereas the denominators are on the total, is this correct? • Has the removal of tariff support made connection charging less cost reflective?

  3. Principles? (for discussion) • The Connection Charging Methodology should be simple and easy to understand and apply. • Connection Charges provide a signal, and in some cases the best incentive, for influencing location decisions. • Shallow connection charging can lead to perverse investment decisions. • Methodology to be applied consistently by all LDNOs. • Methodology not to distort competition in distribution or the construction of assets. • Should the Guidelines be in the Licence?

  4. Proposed approach? (for discussion) • Sole use assets to be charged in full. • Shared or shareable assets to be apportioned. • Amend Apportionment Factors so both numerator and the denominator based on the increases in capacity. • Allow introduction of assets adoption payments (AAPs). • Where adoption payments to be made apply a consistent approach between statutory and adopted connection. • Clear guidance on the areas where CAF rules do not apply: • Work on shared assets where no capacity added, e.g. protection changes, not to be recovered through connection charges • Work on sole use assets where no capacity added, e.g. protection changes, to be recovered in full through connection charges

  5. Next steps • Discuss with Ofgem on the principle of amending the connection charging boundary for DPCR5. • Establish DCMF subgroup to develop proposals. • Submit recommendations to Ofgem for consultation and decision as part of DPCR5 process.

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