Increased socialisation of connection costs in the distribution electricity network

Closes 24 Apr 2025

This service needs cookies enabled.

Annex 4 – High Cost Cap

    1. One of the concerns relating to socialisation of network reinforcement costs is that it provides no locational signal.  Consumers wishing to create a new connection will be indifferent to the effect on the network, the cost to the network operator of providing their connection, or where they seek their connection to be located.  It could be argued that network reinforcement connection charges should provide a signal to consumers to seek connections in strong areas of the network which do not need reinforcement, and in which there is spare capacity. 
    2. Socialisation will reduce the locational signals and without a high cost cap the general consumer base could be asked to pay for unreasonable requests for connection.
    3. One solution, to prevent the wider consumer base paying excessively high amounts for the benefit of a relatively small proportion of connecting customers, is to make connection reinforcement costs which are socialised subject to a cap, a high cost cap.  A high cost cap allows new connections the benefit of socialisation, but charges them the cost of network reinforcement above that cap.  It takes away a lot of the inhibition factor of high reinforcement charges, while ensuring that new connections are not fully indifferent to the cost to consumers of their connection.
    4. It is important to consider the size of the high cost cap, and whether to make it a fixed cap, or based on the cost per MW or kW of the requested connection.
    5. In Britain, the high cost cap[1] was set at the 95th percentile of connection reinforcement costs i.e. £1,720/kVA for demand and £200/kVA for generation.  This required significant data to develop a reliable number, and significant resources to collate and calculate it, and even then required significant assumptions to be made due to some parts of the required data not being collected/available.  The high cost cap in Britain was calculated using data which included a number of Distribution Network Operators (DNOs) covering networks with similar characteristics to NIE Networks.  It was set at a level such that the cap was triggered in not more than 5% of connections in any of those regions.  On that basis there is a good basis for comparability with our system.
    6. UR and the Department consider the market for new connections here to be too small to provide a reliable value for the 95th percentile of reinforcement costs, with the value likely to fluctuate over relatively short periods of time, and thus be unreliable. Like Britain, some parts of the needed data are not collected here.  On that basis, the alternatives for setting a high cost cap here appear to be to:
      1. use local data, knowing it is likely to be incomplete and volatile;
      2. use a value informed by this consultation, and then subsequent experience; or
      3. assume that as overall costs for reinforcement in Britain are similar to ours, the Value of the 95th percentile in Britain is a useful value to commence with. 
  2. In Britain, the high cost cap triggers a liability to pay for all reinforcement costs larger than the high cost cap.  Up to the high cost cap, any reinforcement costs are paid for by the customer in proportion to the amount of new capacity their connection has triggered.  This only applies at the voltage level of connection.  The DNO socialises the cost of any reinforcement at the voltage level above the connection.