Britain’s energy regulator Ofgem has released initial proposals for reforming network charges, suggesting that revised transmission pricing could play a key role in steering energy investment and improving grid efficiency.
In an open letter published this week, Akshay Kaul, director general for infrastructure at Ofgem, said that network charges could be reshaped to “send an effective locational signal” to developers, following the government’s decision to maintain a national electricity pricing system rather than shift to regional pricing.
“Transmission network charges can be a powerful tool to guide investment to make best use of the network capacity being created through the spatial and network plans,” Kaul said, referencing the upcoming Strategic Spatial Energy Plan (SSEP) and Centralised Strategic Network Plan (CSNP).
The regulator is considering ways to evolve charging structures to better reflect future grid availability and energy system needs, including factoring in when and where generation assets are most efficiently connected.
“In the context of sending locational signals to guide investment, network charges could reflect the availability of grid capacity in the year in which generation customers want to connect to the grid,” Kaul wrote. “They could do so by encouraging assets to site in areas where spare capacity is expected so constraints volumes can be reduced.”
Kaul also noted that network charges could eventually be integrated into the grid connection process and the Contracts for Difference (CfD) auction framework, subject to government approval, to better align investment with national energy planning.
“We will work closely with government and NESO to explore the best combination of locational levers that can achieve an appropriate balance between coordination and competition,” he said.
Ofgem’s approach also aims to enhance investment predictability. The regulator acknowledged concerns about the existing Transmission Network Use of System (TNUoS) charging model, which some stakeholders view as volatile and a barrier to long-term planning.
“We recognise that there are challenges with the existing Transmission Network Use of System (TNUoS) methodology, in particular that charges can be viewed as unpredictable and volatile. This can hinder investment decisions and increase risk and cost to consumers,” Kaul said.
Among the options under review are mechanisms that would either fix TNUoS charges at the point of investment or embed locational signals in connection charges, which are typically more stable over time.
“Both approaches would enable investors in future projects to more easily factor in the expected lifetime cost of charges when making an investment decision,” Kaul added.
A detailed timeline for network charging reform will be outlined later this year as part of the government’s Reformed National Pricing Delivery Plan. Full reforms to the TNUoS system are not expected before 2029.
