Guidance

Terms of reference – distribution networks study

Published 27 February 2024

The government asks the National Infrastructure Commission to provide recommendations on the policy decisions required to make the electricity distribution network fit for net zero.

The lower voltage distribution network connects the high voltage transmission network to homes and businesses. Smaller sources of generation and flexibility, such as solar and batteries, also connect to the distribution network. The network in Great Britain is predominantly owned and run by fourteen regional monopoly Distribution Network Operators, owned by six companies. Independent Distribution Network Operators own and operate some smaller sections of network to newer developments and connect into the distribution network.

The distribution network is regulated by Ofgem, which sets the outcomes that distribution networks must deliver and the revenues that distribution network operators may collect. Ofgem regulates distribution networks through a price control process. The current price control period runs from 2023 to 2028.

Demand for electricity is set to increase as heating, transport and industry increasingly turn to electricity to provide cleaner, more stable and efficient energy. The Commission’s analysis for the second National Infrastructure Assessment sees demand for electricity increasing by 50 per cent by 2035 and doubling by 2050.

This increase in demand will require an expansion of electricity networks at both transmission and distribution level, and therefore additional investment. The government estimates that there is around 60 per cent spare capacity across the distribution network, but this will vary by area and the amount of available capacity by area is not well understood. There are also interactions at the interface between the transmission and distribution network that mean connections to distribution networks can be delayed if there is insufficient transmission capacity to support them.

Investment to create additional capacity on the network will be needed in any scenario but the amount of physical capacity needed could be significantly reduced through further application of non-network solutions, such as the use of local flexibility markets, enhanced use of demand side response and improved use of data and digitalisation.

Failure to ensure sufficient capacity on the distribution network, as well as a straightforward, consistent and timely process for connecting to the network, would constrain the ability of consumers to adopt electric vehicles and heat pumps. It would also constrain the ability of business and industry to decarbonise through electrification, as well as restricting the deployment of distribution-connected generation.

In making its recommendations, the government asks the Commission to consider:

• how use of the distribution network will change as new sources of demand, storage and generation are deployed
• whether the regulatory model, including already proposed future changes, is fit for purpose for identifying and enabling anticipatory investment in the distribution network at the scale required to facilitate the connection of new sources of supply and demand, and how it may need to evolve to deliver this investment at pace
• the role of network and non-network solutions in delivering the capacity needed at lowest cost, and the policy, regulatory and governance changes that could be needed to unlock these solutions
• the role of data and technology in managing the network efficiently
• the role of different parties, including Distribution Network Operators, the Future System Operator and Regional Energy Strategic Planners, in the process of connecting new sources of generation to the network, as well as new sources of demand, including low carbon technologies such as heat pumps and electric vehicle chargers. This includes the scope for standardisation across DNOs
• the interaction with available capacity on the transmission network and how this may be impacting connections to the distribution network, and how these interactions could be best managed
• whether any changes to the planning system in England could support faster delivery of needed distribution network infrastructure

The Commission may recommend that the government works with Ofgem to take action on particular issues, but will not reopen the current distribution network price control as part of this study. The Commission will not provide an assessment on the overall level of investment required to upgrade the distribution network to meet the requirements of net zero.

The Commission is asked to take into account and build upon the government’s recent Connections Action Plan (joint with Ofgem) and Transmission Acceleration Action Plan.

The study should provide a final report in around 12 months. Any recommendations made must be in line with Commission objectives, including the fiscal and economic remits provided to the National Infrastructure Commission.