Increased socialisation of connection costs in the distribution electricity network

1. 1. The Minister for the Economy stated in the Assembly on 29 April 2024 that he intends to introduce further socialisation of grid connection costs.  The Minister noted that the further socialisation of connection costs is an important step in removing the high-cost barrier to the mass adoption of heat pumps and electric vehicles. It creates an opportunity for businesses to decarbonise and is a key enabler in meeting our net zero targets.
   2. The current distribution connection charging policy creates a barrier to some new connections by charging the first customer connecting, the full cost of reinforcements needed for the electricity network triggered by their connection, as well as the direct connection costs.  This frequently creates an unfairness to first movers as those connecting after the reinforcements have been made won’t pay towards them.
   3. The nature of rural networks leads to the current distribution connection charging policy unfairly disadvantaging rural consumers.
   4. Stakeholders have advised that the current distribution connection charging policy is a barrier to connecting more renewable generation and to consumers installing Low Carbon Technologies such as heat pumps and EVs.
   5. We already socialise much of the reinforcement/development costs for the electricity network through works approved under the regulatory price control process e.g. RP7, and these are currently already recovered from customers through electricity bills.  The proposals in this consultation would extend this existing level of socialisation, allowing a higher proportion of connection costs to be to be added to NIE Network’s Regulated Asset Base and then spread across all customers over the lifetime of the asset.  For more information on NIE Network’s Regulated Asset Base see Annex 6 – NIE Networks Regulated Asset Base.
   6. The actual reinforcement costs here, associated with equipment etc are similar to those in Britain and Ireland.  However, the proportion of those costs borne by the individual requesting the connection to the distribution network is higher here and the proportion of those costs socialised to all customers is lower here.  
   7. This consultation relates to those seeking a connection to NIE Networks’ distribution network.  Connection to the transmission network is outside the scope of the consultation.^[1].
   8. For homes and businesses, especially in rural areas, adding a heat pump or an electric vehicle charger can require a larger connection, and that can be the trigger that necessitates some reinforcement to local lines.  Currently, they would be liable for the cost of upgrading that local line, even though other customers share that line, and could add their own EV or heat pump after the first customer had paid for the upgrade.  Domestic customers, who have paid for reinforcement, could potentially apply for some compensation, if a future customer benefits.  However, this provision is complex and difficult for domestic customers to understand and therefore many may not access the provision.  This makes adopting new low carbon technologies unfairly less feasible for many people, particularly in rural areas, or among households and business unable to afford the current up-front costs. 
   9. Moving to modern electric heating from fossil fuel has the potential to provide many benefits to rural customers.  Electricity is a clean convenient, regulated and safe fuel source.  Oversight by the Utility Regulator ensures that: electricity suppliers provide prepayment meter options; vulnerable customers have protection from disconnection; customers receive accurate clear and regulated information on bills; and electricity suppliers are required to comply with the protections contained in codes of practice on, for example, providing assistance for the disabled.  So removing barriers to moving to a heat pump provides a range of benefits to rural and vulnerable customers.
   10. While the problem applies to domestic customers wishing to connect low carbon technologies to the distribution network, it also applies to businesses and larger customers wanting to connect such technologies to improve their businesses and reduce their carbon intensity.  The Department has received submissions from Electric Vehicle Charge Point Operators wishing to install public Electric Vehicle Charge Points, saying that the current distribution connection charging policy is an inhibitor for doing so here.  Likewise, housing estate owners or housing developers^[2] face similar connection charging policy risks if they wish to install large heat pumps to service or upgrade a housing development with low carbon heating.
   11. The “first mover disadvantage” also applies to generators connecting to the distribution network.  This can make the region a less competitive place for renewable generators and others to invest.  It may also cause some renewable developers to hold back new developments hoping for another developer to be the first mover and bear the initial cost.   For examples on how the proposals in this paper will affect connection costs see Annex 5 – Potential Cost Effects on Example Connections.  Large generators connecting to the transmission network are outside the scope of this paper.

Will reinforcing the distribution network mitigate the issue of high connection costs?

1. 12. In the next 6-year price control period (RP7) NIE Networks will spend over £2 billion in operating and developing the electricity network (both distribution and transmission), to help change from a fossil fuel-based system to a renewables based energy system.
   13. UR has published its final determination on RP7^[3].  This sets out an investment package of £2.23 billion that will support our journey to net zero. RP7 will facilitate the transition away from fossil fuels to renewable energy sources. It will also help to secure a robust and resilient network to support innovation and provide increased capacity, while securing long-term value for the region’s electricity consumers.
   14. While reinforcement work planned under RP7 will eventually reduce the reinforcement charges associated with connections here, NIE Networks cannot do all of its proposed network upgrades at once.  A customer connecting in an area where NIE Networks has not finished the RP7 upgrades would currently be charged any necessary reinforcement costs, whereas a customer in an area where NIE Networks had completed its RP7 upgrades could face no additional reinforcement charges.  We continue to encourage NIE Networks to plan and build its network efficiently.  However, the timing issue for RP7 reinforcements is likely to create a type of regional unbalance for customers seeking to connect, or increase their connection, to the network.  Further socialising network reinforcement costs would remove this unbalance.
   15. The socialisation of connection costs being considered in this paper relates only to costs to reinforce the existing network leading up to the customer’s network connection point.  Customers will still be liable for any new poles or lines etc. required to connect their premises to the existing network, and for any upgrades to electrical equipment on their side of the connection point.  The proposals in this paper do not mean that network connections will be free of any charge.

Call for Evidence Responses

1. 16. Responses to the Department and UR joint Call for Evidence^[4] generally supported moves to facilitate more low carbon connections to our electricity distribution system.  Responders recognised the benefits to our net zero targets, and the benefits of facilitating more renewable energy here.
   17. Some responses to the Call for Evidence also emphasised that any material increase to a customer’s bill, given the current economic landscape is likely to be difficult to accept, especially for those in fuel poverty.  The Department has been conscious of this in developing the proposals in this consultation and affordability has been a key concern.  Therefore, we have focused on analysing all effects so that this consultation will provide stakeholders with the relevant information.  In addition, the regulatory process here works to ensure that costs are as low and as efficient as possible for consumers and mitigated where possible.  Full detail on the responses to the Call for Evidence can be found at Annex 3 – UR/DfE Joint Call for Evidence - Responses.