Increased socialisation of connection costs in the distribution electricity network - Annex 1 – Further Analysis of Costs and Benefits of Options - NI Direct

Annex 1 – Further Analysis of Costs and Benefits of Options

Option 1 – Status Quo – Minimal Socialisation

1. No change to existing charges to customers seeking a connection or consumers, in relation to connection charging. Charges would be neither increased nor decreased from the current regime.

Option 2 – Partial Socialisation

Cost to Consumers

1. NIE Networks has forecast the cost for partial socialisation of distribution reinforcement connection costs for demand and for generation over the period 2025 to 2035 as approximately £2.20 extra per customer per annum for domestic customers^{^[1]}, decreasing to zero over the 40 year life of the assets.

Table 6. - Cost estimates if Option 2 is implemented.

Cost of socialised reinforcement over 10-years	Average socialised cost per year	Additional Cost to domestic consumer per year	Socialised Cost over 40 year life of the asset
£93.4M	£9.34M	£2.20	£172M

Option 3 – Full socialisation for homes and businesses, partial socialisation for generators.

Cost to Consumers

1. NIE Networks has forecast the cost for full socialisation of distribution connection reinforcement costs for demand and partial for generation over the period 2025 to 2035 as approximately £3 extra per customer per annum for domestic customers, decreasing to zero over the 40 year life of the assets.

Table 7. - Cost estimates^{^[2]} if Option 3 is implemented.

Cost of socialised reinforcement over 10-years from 2025

Average socialised cost per year from 2025

Additional cost to domestic consumer per year

Socialised Cost over 40 year life of the asset

£116.4M

£11.64M

£3.00

£214.5M

Option 4 – Full socialisation

1. NIE Networks has forecast the cost for full socialisation of distribution connection reinforcement costs for demand and generation over the period 2025 to 2035 as approximately £3.05 extra per customer per annum for domestic customers, decreasing to zero over the 40 year life of the assets.

Table 8. – Cost estimates if Option 4 is implemented.

Cost of reinforcement over 10-years (from 2025)	Average socialised cost per year from 2025	Cost to domestic consumer per year from 2025	Cost, if we continue to socialise over 40 year life of the asset (capex costs plus return on the asset)
£117.8M	£11.78M	£3.05	£217M

Table 9. Effect of options on reinforcement charges for different customers seeking a connection.

All customers seeking a connection will continue to pay full connection asset costs.

User Type	Option 2	Option 3	Option 4
HV connected onshore wind farm	Reduced distribution connection reinforcement charge	Reduced distribution connection reinforcement charge	Full socialisation of distribution reinforcement costs
HV Distribution connected onshore wind farm via cluster methodology.	No direct effect.	No direct effect.	No direct effect.
Small demand connected solar farm (generating)	Reduced distribution connection reinforcement charge	Reduced distribution connection reinforcement charge	Full socialisation Full reduction of distribution reinforcement charges
EV charging infrastructure for fleet of delivery vehicles	Reduced distribution connection reinforcement charge	Full socialisation Full reduction of distribution reinforcement charges	Full socialisation Full reduction of distribution reinforcement charges
Domestic household installing a heat pump and EV charger	Reduced distribution connection reinforcement charge	Full socialisation Full reduction of distribution reinforcement charges	Full socialisation Full reduction of distribution reinforcement charges

Table 10. Forecast costs for 4 Options for distribution network reinforcement costs

The table below shows the cost to the consumer for distribution network reinforcement costs under all 4 options.

	Overall Reinforcement Cost £M	Socialised Cost per annum £M	Additional Cost per domestic consumer £ p.a.	Total Socialised Cost to Consumers over asset lifespan (40 years) £M (2024 £s)
Option 1 – Status quo	11.78 per annum 117.8 total	0.00	0.00	0.00
Option 2 – Partial Socialisation	11.78 per annum 117.8 total	9.32	2.20	171.84
Option 3 – Full socialisation for homes and businesses, partial socialisation for generators	11.78 per annum 117.8 total	11.63	3.00	214.54
Option 4 – Full Socialisation	11.78 per annum 117.8 total	11.78	3.05	216.7

Note: Forecasts are inherently subject to a range of assumptions and uncertainties, this is especially relevant for costs forecasts which extend out ten years from now. Annual cost to consumers will decrease to zero over the life of the assets.

[1] Calculated as at 2030/31 price control year.

[2] NB some of these figures are estimates provided by NIE Networks, some figures have been calculated by UR/DfE through information provided by NIE Networks.