ELEXON Insights: Our views on the next network price controls

In this insight piece, Jeremy Caplin, Market Architect at ELEXON, talks about our response to Ofgem’s consultation on the methodology it will use to reset the network price controls from 2021.

Published: March 2019

Why the review

Gas and electricity is transported around Britain through networks of pipes and wires. Ofgem regulates the monopoly network businesses and it is reviewing the price controls for gas distribution and energy transmission companies so they can be reset from 2021.

When Ofgem re-sets the price controls for energy transmission companies it will need to set a separate price control for National Grid Electricity System Operator (NGESO).

From April 2019, NGESO will be a legally separate entity within the National Grid group. It will play an important role in managing the electricity system, working closely with Distribution System Operators (owners of lower voltage grids).

ELEXON’s view

We want to see the best outcomes for consumers and the industry when the price controls are re-set. Simplification and consolidation of the 11 energy codes that underpin the energy system is one way to achieve this. This should include consolidation of the codes managed by NGESO.

Merging code management roles

In our response to Ofgem we propose that the code administration roles that NGESO performs (for the Connection and Use of System Code, the Grid Code and the System Operator Transmission Owner Code) could be merged with our role as code manager for the Balancing and Settlement Code (BSC).

This means users of the electricity transmission grids, which include generators and large industrial businesses, can also benefit from ELEXON’s ‘best in class performance’ on code management.

Innovation funding for networks

Ofgem allows specific funding in the price controls so that network companies can trial innovation. This has included projects which help to connect more renewable generation and test the impact that using batteries or charging electric vehicles has on the networks.

The need for networks to use innovation will only increase in the coming years and we want to see best value for consumers and the industry.

In our response we suggest that most small-scale network innovation projects should be funded via price control incentives instead of the specific ‘network innovation allowance’ in the current price controls. This will avoid consumers paying twice for innovation.

Generally, we think that network innovation funding should be focussed on the major strategic challenges facing the energy sector, which would not otherwise be funded by ‘business as usual’ approaches.

Information sharing

The energy system is becoming smarter. For example, consumers can use smart meters and other technology to offer ‘demand side response’ to the networks, where they reduce their energy use in return for payments or benefits.

This can help to reduce the costs of running the electricity system. Sharing data which helps with this will be very important in future.

Any incentives network companies have on data sharing or reporting should be coordinated with the work of the Energy Data Taskforce to ensure ‘whole system thinking’.

Background reading

We are also pleased to say that Ofgem’s annual code review survey has scored ELEXON as having the highest net satisfaction rating of all the code bodies for two years running (2017 and 2018).

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