Geeky but Fundamental

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Why P2/6 Matters.

The Distribution Code Review Panel are currently consulting on changes to engineering recommendation P2/6. Please keep reading. It may sound dull but it’s really important.

There is currently a lot of interest in regulatory circles about the future of network charging to support the energy transition. Ofgem is carrying out a targeted charging review looking at the residual element of those charges (ie the bit that isn’t cost reflective but is needed to allow networks to recover their full revenue allowances).

As I’ve argued before there is an equally important exercise needed to look at the cost reflective element of charges which Ofgem seem to be largely leaving to industry.

Together these changes could radically reshape network charges (eg to move to much higher standing charges or charges linked to some measure of peak demand). This would in turn be expected to flow through into the prices that consumers pay. So it’s an important issue and one that somehow needs to bring in a wider public debate and consumer view – sooner rather than later.

It’s difficult because it’s pretty technical but Ofgem rightly expects network companies to engage with consumers on their RIIO business plans and should apply the same principles here.

So where does P2/6 come in? Well the basis for the cost reflective element of charges at distribution level is a network cost model that looks at what the costs would be of incremental demand on the network. To determine what the incremental costs would be the model uses the engineering standards that the networks themselves use when determining whether additional reinforcement is needed to maintain prescribed reliability standards. This means building a certain level of redundancy into the system which is currently prescribed in engineering recommendation P2/6.

However, very reasonably, over recent years the distribution networks have recognised that P2/6 has been hindering them in moving to a smart, flexible energy system. If there are constraints on the network they could be addressed through flexible solutions such as DSR or storage but if P2/6 still says you need a certain level of redundancy then that arguably removes the incentive to use those solutions. The networks, under the auspices of the ENA have been carrying out a major review of P2/6 and the conclusion appears to be that it should be replaced by a new standard that is not prescriptive and simply says that DNOs should carry out a cost benefit of alternative ways of meeting the reliability standard.

That makes real sense but it’s a fundamental change – and it also rather underlines that the current mechanistic model for determining cost reflective charges is no longer fit for purpose.

The code modification to introduce this change is currently being consulted on by the Distribution Code Review Panel (DCRP 18/03/PC closing date 12 Feb). Obviously not many people follow the DCode Panel consultations so I doubt it will attract much interest. The results of the ENA Phase 1 work are on the ENA website but they left options open and any further work is hard to find. The DCode consultation doesn’t give any context. Matthew Lockwood at the IGOV project at the University of Exeter recently wrote a good blog on the topic of P2/6 but even he didn’t pick up on the DCode proposal.

If the DCode proposal were to go through, then Ofgem would need to approve (or not) any change which might be an opportunity for this to be given the attention and wider debate it deserves – but there is a risk (at least without this blog...) that it might just slip through as another geeky technical change.

Ofgem has made a welcome announcement in its forward work plan that it intends to significantly strengthen its engineering skills and has recently appointed a new chief engineer. This is perhaps an early test for the new engineering team there - to give this mod a proper going over when it reaches Ofgem and to help shape things along the way. And hopefully it’s also a wake-up call for the network charging team that how one determines the right way of looking at the cost reflective element of distribution network charges is a tough nut to crack and Ofgem needs to grasp the nettle and provide some direction rather than just leaving that to industry.