Energy Potential has put together a thought paper on how the derivation of Distribution Use of System (DUoS) charge could be improved. This paper has been prepared as a submission to the Ofgem led taskforce currently looking at forward looking charges. We highlight a key difference between the methodologies used to set network charges across different voltage levels, and suggest a new probability driven approach that has clear benefits to network users.
The asset cost model used within the Common Distribution Charging Methodology (CDCM) determines the cost of building new network infrastructure, and is the key building block of the methodology. However, the DNO may or may not actually build the new network infrastructure. In the case where the network infrastructure is never built, no cost is incurred, and yet the CDCM model has allocated the majority of this ‘hypothetical’ cost for recovery by network users via unit rates which are avoidable by end users. This is inconsistent with the network charging methodologies used at higher voltage levels where asset costs are recovered weighted by the likelihood that the cost is incurred. Energy Potential believes that incorporating a similar probabilistic assessment around the 500MW model would improve the CDCM with more cost reflective prices that reflect the likelihood that each DNO will incur future capital expenditure.
This new approach could be used to determine the proportion of costs recovered from unit based charges. Unit rates would be higher where there is a greater likelihood of real reinforcement occurring, both across DNOs and by voltage level. Conversely, when reinforcement is deemed unlikely, the benefit to the network company of users changing their consumption pattern is much reduced. The approach would also result in more cost reflective credits to generators which would be higher at voltage levels and/or in DNO areas where reinforcement is more likely to be incurred. Furthermore, the methodology would aid the transition from DNOs to DSOs as it will require Distributors to understand their network reinforcement requirements on a more granular basis.
The full paper can be downloaded here:
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