Increased socialisation of connection costs in the distribution electricity network

1. 1. This section provides further detailed explanation of the options.  Full details on the costs and benefits of each option are included in Annex 1 – Further Analysis of Costs and Benefits of Options and Annex 2.  The Department considers that there are 4 options, 3 of which are viable for the future connection charging policy on the distribution network here.  We have included Option 1 “Remain as Status Quo”, for benchmarking purposes against the other Options.  However, currently we do not consider it is a viable option to reduce high connection charges and deal with the issues set out in section 1 of this paper. 
   2. It is proposed that options 2-4 will be subject to a “high cost cap”.   The high cost cap is outlined in Annex 4 – High Cost Cap. 
      
      The Department’s preferred option is Option 4, full socialisation of network reinforcement costs for demand (households and businesses seeking to use electricity) and generation connections to the distribution network.
   3. At present, a customer connecting to our distribution system is required to pay for the assets necessary to:
      1. Connect the customer to the existing distribution system (connection asset); and
      2. Reinforce the distribution system at the connection voltage level and one voltage level above (network asset)^[1].
   4. The Status Quo will not be considered as a valid option.  However, we have included it in the options for benchmarking purposes.

Option 2 – Detail in relation to Partial Socialisation

The table below summarises what costs would be paid for by the customer seeking a connection to the network and what costs would be socialised.

Table 2 – Connection charging regime for Option 2

1. 5. Option 2 proposes that both demand customers and generators seeking a connection would pay for:
      1. all of their connection assets; and
2. part of any network reinforcement assets required for their connection (or to increase their connection capacity) at their connecting voltage and one level above (subject to a high cost cap).  This would be based on the proportion of the increased network capacity that this reinforcement created.  This method is similar to neighbouring jurisdictions.
3. These customers would not pay for:
   1. any network reinforcement assets at voltage levels higher than one level above their connection voltage, (that would be fully socialised). 

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

1. 7. The table below summarises what costs would be paid for by the customer seeking a connection to the network and what costs would be socialised.

Table 3 – Connection charging regime for Option 3

1. 8. Option 3 proposes that demand customers seeking a connection would pay for:
      1. the new connection assets from the existing distribution network to their premises (either for a new connection or when increasing the capacity of their existing connection).  For example, this would apply to homes or businesses installing Low Carbon Technologies and other forms of increased demand.
2. 9. These customers would not pay for:
      1. any network reinforcement assets required for their connection (subject to a high cost cap).
   10. Option 3 proposes that generators would pay for:
       1. all of their connection assets; and
       2. a portion of the network reinforcement assets needed to connect them (or to increase their connection capacity) at their connecting voltage.  This portion would be based on the proportion of the increased network capacity that their reinforcements created.  This method is similar to neighbouring jurisdictions;
   11. These generators would not pay for:
       1. any network reinforcement assets at any voltage above their connection voltage.

Option 4 - Full Socialisation

1. 12. This is similar to Option 3.  However, it would apply full socialisation to reinforcement costs for network connections for both demand and generation.  The table below sets out how the customers would be charged.

Table 4 – Connection charging regime for Option 4

1. 13. Option 4 proposes that both demand customers and generators seeking a connection would pay for all of their connection assets
   14. These customers would not pay for any network reinforcement assets, subject to a high cost cap.

Link with Cluster Methodology

1. 15. NIE Network’s cluster methodology was first introduced in 2011 with aims to improve access to the network for renewable generation by grouping stations to an ideal location, thus creating a more efficient connection with reduced environmental impact.    As outlined the proposals in this paper relate only to those connecting to the distribution network.  At present many connecting to the distribution network at 33kV at present do so through NIE Networks’ cluster policy.  NIE Networks recently consulted on changes to aspects of the connection charging policy at generator clusters – Cluster Sub-station Update Consultation^[2].

Costs

1. 16. NIE Networks has provided a forecast of the likely additional costs per year on consumer bills in 2030/31 for the different socialisation options.  See Annex 1 – Further Analysis of Costs and Benefits of Options for the costs and benefits of each option.
   17. The forecasts apply a high cost cap in their calculation (see Annex 4 – High Cost Cap for further detail on this concept).  The forecast costs range from an additional £2.20 to £3.05 per annum for each domestic customer per year (decreasing to zero over the life of the assets).  Costs for larger users are set out in Annex 2. – Cost Tables.