Recommendation 65

HM Government Accepted in Part

103. The Government supports Ofgem’s approach for enabling networks to invest ahead of need, where this is in consumers’ interests. Ofgem has recently approved an ambitious £30bn investment for electricity transmission networks (RIIO-T2) and £22bn investment for electricity distribution networks (RIIO-ED2) over the current price control periods, which includes significant investment to expand and upgrade the network. Ofgem has also recently announced an additional £10bn investment for transmission networks, for which they are consulting on the delivery model. This is the largest increase in network capacity in decades. 104. The Government agrees that improved transparency of connection dates will help developers manage their expectations regarding connecting to the electricity grid. The Government has also been clear that more needs to be done to reform the connection process and reduce connection timescales, and we are working closely with Ofgem, the Electricity System Operator (ESO) and the Distribution Network Operators (DNOs) to bring forward reforms that will make the process faster and more efficient. 105. The Government launched its Connections Action Plan on 11 June 2023, outlining immediate and longer-term actions to reform the grid connections process and reduce connection timescales significantly. This plan includes measures to bring forward connection dates for projects already in the queue, overhaul the process for offering new connections, and transform the long-term approach to connections. 106. The Government supports Ofgem in the action they are taking on this matter, including their proposal to introduce new licence conditions which will require network companies to implement more effective connections processes. Ofgem has also proposed to amend their licence to ensure this will be addressed in future price controls to encourage network operators to facilitate the connection of new generation and demand in a timely, efficient and economical manner, and to provide more transparent information to network users. 107. The Government is also working with Ofgem and the Electricity System Operator (ESO) to consider how best to provide greater clarity on the future approach to network charging, for both transmission and distribution, which is an important aspect of the connection process. 108. Ofgem will also seek to introduce a new, enhanced connections incentive for Transmission Operators beyond the 2028 date when the price control ends. RIIO-ED2 will also incentivise speeding up the connections process. 122. [Response provided by ESO] Across Winter 22/23, 1.6 million households and businesses signed up to participate in 22 service events across the winter, covering both live events to balance Great Britain’s electricity network and monthly test events to deliver savings for consumers, demonstrating interest and enthusiasm for consumer flexibility on a scale not previously seen in the UK. 123. Introduced as an enhanced action to support operation of the network during Winter 22/23, the Demand Flexibility Service was used twice for live events in January 2023 to support the management of the electricity system. While the ESO’s day to day operational tools allowed it to operate the network as normal without the active use of the Demand Flexibility Service to manage margins, this service demonstrated the level of interest and engagement in consumer flexibility. 124. The national smart meter network, operated by the Data Communications Company (DCC), also played an important role in facilitating greater consumer participation, helping to connect consumers to a new range of smart applications used by providers for this service. 125. The ESO is undertaking a holistic review of the Demand Flexibility Service alongside industry participants and consumers to assess how the service could be improved in future. The outcomes of this review will be published later this summer, and will inform decision making around the future evolution of the Demand Flexibility Service. 126. [Response provided by Ofgem] ESO is gathering data and evaluating the Demand Flexibility Service, including through the appointment of the Centre for Sustainable Energy and Element Energy, to lead an innovation project exploring the customer experience of participating in the service. 127. Ofgem considers it is important to try to make demand flexibility both universal and automatic, so that consumers do not have to put in as much manual effort to participate and/or benefit from flexing their demand. 128. Ofgem will support the ESO’s evaluation activities as it reviews the service for a potential further rollout for winter 2023/24 and stands ready to act when necessary. 129. [Response provided by Ofgem] Ofgem recognises the concerns with regards to how distributed flexibility markets operate. While there has been significant progress in the development of distributed flexibility, essential work to align flexibility markets is not progres