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When looking at the process around electricity connections, it becomes apparent that UK energy infrastructure needs significant investment.

The electricity network is struggling to keep up with demand and in some areas of the country, the congestion is so severe that the headroom is exhausted.

Add to this, the increased demand from property developers, investors and clients for low carbon renewals and the pressure to meet net zero targets, and you have a considerable challenge. After an extensive review, Ofgem is introducing several reforms.  

Aiming to make access to the electricity network easier and potentially less expensive, including the appropriate mix of electricity sources and uses of technology, the Access and Forward-Looking Charges Significant Code Review (Access SCR) tackles access and pricing and is due to be implemented in April. These reforms have the potential to make previously uneconomical project sites (due to high upfront costs) viable again.  

What happens currently? 

At present, when connecting to the electricity network, the responsible Distribution Network Operator (DNO) 鈥� there are 14 covering different regions – looks at what work is needed to enable the connection. Generally, new 鈥渁ssets鈥� such as cables, switches, etc. are needed to extend the existing network to the customer site. In some cases, the connection will also require the DNO to upgrade or expand the capacity of the existing shared network assets to make the new connection possible. This is called 鈥渞einforcement鈥�. The costs for reinforcement are then charged in full unless the reinforcement is needed by the DNO or another customer in which case the costs are shared. 

Why is this a problem? 

Currently, the connecting customer 鈥� whether a client, an investor or the developer, is liable for all of the connection costs associated with the connection. These costs can be significant making some development sites prohibitively expensive. 

There鈥檚 more: connecting customers are also subject to 鈥渟hallow-ish鈥� connection boundaries. This means the connecting customer and wider distribution network customers share the costs for the reinforcement. Connecting customers may also be encouraged to connect to the network where there is spare capacity 鈥� which may not be in the same location as the proposed/desired development. In this case the DNO鈥檚 wider customer base effectively pays for any reinforcement that has been done.  The spare capacity may be historic or created by recent planned upgrades but still is not charged in the connection fee. 

Ofgem was concerned that the existing charging arrangements were no longer suitable to achieve wider UK energy reforms. Under current arrangements, connecting customers could be encouraged to 鈥渇ree ride鈥�, where prospective customers wait until reinforcement has been requested or 鈥渢riggered鈥� by another customer or the DNO first. Similarly, DNOs could undertake reinforcement works sporadically, rather than looking at the wider network holistically.  

Finally, Ofgem was concerned that the current reinforcement cost rules could create barriers to investment in low carbon technologies. Ofgem also raised concerns that differences between current connection charging arrangements at the point of distribution and transmission level could result in a mismatch between electricity generators when connecting to the different networks. 

What happens after the Access SCR Decision comes into effect on April 1st? 

Essentially, connecting a development site to the electricity network could cost less. However, this is subject to a number of variables which are overviewed below.

The Access SCR Decision introduces a 鈥榝ully shallow鈥� connection charging boundary around electricity demand. This means connecting customers, i.e. developers, pay for extension assets only and not for reinforcement costs around new electricity connections.

For generation connections, Access SCR introduces a 鈥榮hallow-ish鈥� connection charging boundary.  This means connecting customers pay for extension assets plus a contribution towards reinforcement costs at the voltage level at the point of connection. 

However, Access SCR also has retained and introduced a series of mitigations, where connecting customers will pay more towards reinforcement in certain circumstances. These include developments where the high-cost cap threshold (a 拢/KW value for certain types of connections) is triggered and generation connections with a high-cost project threshold – currently set at 拢200/kW.

Let鈥檚 consider the development of a data centre for example. Research suggests that the global market for data centre construction is predicted to reach 拢24bn by 2027 and that demand for data centres is expected to increase tenfold between 2018 and 2050. To develop one 鈥� lucrative because nearly 70% of the development cost is mechanical and engineering work, there is a large network capacity demand. Once built, large amounts of energy (electricity) are required to keep the data centre functioning optimally. More specifically, to keep the data centre cool.  

In 2022, global commercial real estate firm, , predicted that data centres would deliver 204MW of new supply in Q4. For reference one megawatt of electricity is enough to power roughly 285 homes.鈥疭o that is the equivalent of 58,140 homes. 

So how would these reforms alleviate the bottlenecks? 

Principally, Ofgem is removing often expensive upfront reinforcements costs. This would reduce overall connection charges in most development cases from April 1st and provide flexible access options which may enable quicker and cheaper connections in congested areas of the network.  

Similarly, the DNOs are encouraged to look at wider network requirements in a more holistic way to meet future capacity requirements, removing the potential for a more sporadic approach. We should also see less of a 鈥渕ismatch鈥� around network connections from various suppliers offering a more level playing field between energy service providers. 

Last, but not least, by streamlining the process for connecting new electricity users to the grid, developers could be able to start work sooner, provided their demand is aligned with and/ or phased with available capacity. 

What can we do to futureproof energy to 2050 and beyond?

The reality is that meeting the UK electricity demand, as we look to adopt new heating and transport solutions, is a complex challenge. Similarly, future-proofing the UK energy sector beyond 2035, requires not just a holistic approach, but close collaboration from all industries.  

There is no doubt that any ability to further develop and embrace low carbon technologies will require significant investment 鈥� not just of time and technology, but in energy infrastructure development.  

However, the UK鈥檚 move towards a standalone Energy Sector should be embraced. It provides significant potential for the deployment and integration of not just talent, but multiple sources of renewables (e.g. ground sources: sewers, sea water, mine water and even air) thus helping to alleviate the risk of over-reliance on energy sourced from abroad.  

As a practice, we are working closely together to better align key development requirements vs. available solutions. This also considers alternative procurement solutions, optimal commercial arrangements and spatial planning. More on this will be discussed in the next blog. 

For a summary of Access SCR, request a copy. For more granular information, please contact Chris Glover.