Ofgem publishes transmission system reform proposals

26 Feb 2002 – UK power regulator Ofgem today published reforms proposals for long-awaited changes to the transmission system in the England and Wales. The initiative comes shortly after similar proposals affecting gas transmission company Transco and attempts to update the operation of the system following privatization and changes to the pattern of supply and demand.

Behind the proposals is Ofgem’s commitment protect consumers interests by ensuring security of supply and a desire to reduce the “bottlenecks” which arise within the National Grid Company’s transmission system.

The need for reforms to transmission access and losses arrangements has been recognised by regulator and industry alike for more than ten years – but there has been considerable debate about how they can be achieved.

Ofgem believes that its latest proposals are necessary because changes in the patterns of supply and demand for electricity, due for example to European liberalisation and greater interconnector flows which may result in increased “bottlenecks” and therefore could threaten security of supply and lead to rising costs for customers.

Managing Director, Competition and Trading Arrangements, Eileen Marshall said, “Ofgem believes that, in order to enhance security of energy supplies for customers, it is essential that there should be a different approach to transmission access and losses to give NGC and market participant better signals on which to make future investment in decisions and the efficient use of existing assets. Today’s proposals will go a long way to achieving this, and are aimed at generating debate among the industry and others.”

Ofgem is proposing that the cost of transmission losses be allocated more towards customers located the furthest distance from the source of power generation rather than be spread across all generators and suppliers as is now the case. The affect could mean a rise of à‚£7m($10m) a year across customers in the Greater London area whereas customers in the north may see the overall cost of electricity reduce by à‚£19m.

Ofgem hopes that the changes will create better market-signals about where investment is needed in the transmission system. It also believes reform will encourage “green” and distributed power generation such as wind, solar and CHP, which will be more viable if located close to areas of high demand and no longer subject to the costs of transmission losses.

Ofgem said the details of these reforms would be for industry and others to take forward and develop. This will be by a variety of means including the new governance arrangements for access and use of the grid – Connection and Use of System Code.

The document released today follows a period of consultation arising from Ofgem’s initial proposals released in May 2001. The proposals do not apply to the Scottish generation market where reforms are underway through the introduction of a British-wide Electricity Trading and Transmission Arrangements (BETTA).

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