Distribution Use of System Charges: Significant Code Review update
Reports, plans and updates
- Publication date
- Read time
- 4 min read
- Industry sector
- Distribution Network
- Transmission Network
- Supply and Retail Market
- Generation and Wholesale Market
Summary
The reform of Distribution Use of System (‘DUoS’) charges through the DUoS Significant Code Review (SCR) aims to ensure electricity networks are used efficiently and flexibly, reflecting users’ needs and allowing consumers to benefit from new technologies and services while avoiding unnecessary costs on energy bills in general.
We acknowledge that the design of reformed DUoS charges is dependent on further understanding of the future market and the system cost recovery arrangements. As a result, we don’t intend to prioritise DUoS Reform work until more is known about the direction that the REMA project will take and further steer from Ofgem’s Energy Cost Allocation and Recovery review is available. Ofgem resource will therefore be focused on engaging and progressing these strategic areas.
Here we set out our approach to the DUoS SCR while ensuring future arrangements are holistically designed and align with significant changes across relevant parts of the sector.
Background
Our principal objective is to protect the interests of existing and future consumers in relation to gas conveyed through pipes and electricity conveyed by distribution or transmission systems. In practice, this requires the strategic coordination and prioritisation of work to ensure that the regulation of gas and electricity systems is delivered in a holistic and considered manner.
We recognise that the use of the electricity distribution network is rapidly changing and will continue to develop in the run up to Clean Power 2030 and the future electricity system. Distribution network charges underpin the relationship different user groups have with the distribution network and influence how they interact with it. The specific role that charges will play in the future is being shaped by several influential policy questions currently developing across the sector.
Related workstreams
The Government’s Review of Electricity Market Arrangements (REMA) is establishing the future design and operation of the electricity market, and following this, we expect reforms to Transmission Network Use of System (TNUoS) charges to be needed to align with the new market arrangements. These developments directly shape the context in which DUoS charges operate, with the future arrangements required potentially differing under either a reformed national market or a zonal one. It is imperative that distribution network charging arrangements are consistent and complementary of transmission network charging and wholesale pricing designs to ensure they drive the right behaviours and are fair.
As such, we believe the current optimal approach to delivering the SCR is to focus on continuing engagement with these reforms in the immediate future, waiting to scale up the development of well-aligned, complementary DUoS arrangements as further direction and information on the conditions established by REMA and TNUoS reform emerges.
Furthermore, Ofgem has launched the Energy Cost Allocation and Recovery review, which is looking at how the costs of the energy system (including distribution network costs) can be recovered from different types of customers and what this would mean for customer bills, in the context of the transition to more renewable energy sources.
The outcome of this review will play an important role in informing the approach that DUoS charges will take in recovering costs from different types of users. For this reason, we think the delivery of DUoS reform should be coordinated alongside the timelines and strategic direction of the Energy Cost Allocation and Recovery review. We invite stakeholders to get involved by responding to our call for input on the topic this summer.
Given the distinct role that the distribution network has in linking the majority of consumers with the electricity grid, and as such their use of electricity, we further consider that reforms to DUoS arrangements must not be developed in isolation from broader retail and consumer policy questions. How the use of the network is changing has significant interactions with DUoS, from the adoption of electric vehicles and electrified heat to the role of storage and distributed generation or the vision of consumer flexibility.
Our ongoing approach to DUoS reform
To ensure these sector developments are appropriately considered and balanced, we are currently establishing our process and framework to advance reforms to DUoS arrangements as the outcomes of REMA, TNUoS charging reform and the Energy Cost Allocation Recovery review become clearer. The progression and timeframes for developing policy for reformed DUoS arrangements is contingent on the progress made in these wider workstreams given the close interactions. When this is received, we will outline our proposed approach to progressing DUoS reforms under the SCR.
We understand that there are operational and design challenges to the current DUoS arrangements presently being faced by industry. An example of this is the occurrence of excessive surplus residuals in the DUoS charging methodologies, which we addressed alongside industry through a series of derogations earlier this year. We remain committed to addressing urgent issues as they arise in a pragmatic and proportionate manner, whether via the industry-led code modification process or other means, while leaving design-led enduring solutions for later work under the SCR when more is known on wider arrangements.