EVALUATION

AN INDEPENDENT EVALUATION OF THE LCNF
generator units. As a result of Ofgem intervention DNOs have made significant
improvements to better understand the requirements of their DG stakeholders such as the
annual DG Forum 25 and DNO-specific DG stakeholder groups.
It is our view that, the pressure to connect would have come from both the generators
themselves – who are seeking routes to market – and through the Government as part of
their wider aims to increase electricity generation from renewable sources 26 . For example
the development of financial incentives for DG will have significantly improved the
business case for these generators who may have previously been put off by high
connection costs. We believe that this pressure would have led directly to DNOs finding
solutions to the challenges of connecting a significant number of renewable DG, even in
the absence of LCNF project funding.
On this basis, and for our quantitative analysis, we have assumed that 20% of the overall
benefits reported by the DNOs arising from the LCNF projects and initiatives would have
occurred anyway and in the absence of LCNF projects.
We are aware however, that there is a significant level of uncertainty associated with
attempting to quantify the benefits associated with ‘what might have happened’. For
example, whilst it is true that the majority of DG connections to date have not used
alternative connection arrangements developed through LCNF, this could reflect an
amount of existing ‘surplus capacity’ on parts of the distribution network; and that
over the last 18 months the networks have become increasingly constrained and
further connections will increasingly rely on LCNF-derived solutions.
There is an alternative view that without the LCNF the amount of DG connection
would have been less significant. For example, it is possible that without the LCNF,
DNOs would not have been exposed to the same level of accountability to connect
DG.
In recognition of the uncertainty associated with the counterfactual we have undertaken
sensitivity analysis around the 20% level when estimating the net benefits 27 .
Our rationale for the counterfactual focuses on the connection of DG rather than on other
LCNF projects that may be of more direct benefit the DNOs. Without any specific low
carbon incentive our view is that DNOs are more likely to focus on shorter-term ‘within
price control’ benefits – associated mainly with reduced levels of network expenditure 28 .
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28
The DG Forum was established by Ofgem in 2011 to enable DG customers and DNOs to
discuss issues and steps taken to improve arrangements. From 2013 these events have
been organised by the Energy Networks Association (ENA) on behalf of the DNOs. DG
technical forum meetings are also held regularly between the DNOs and industry bodies to
discuss and address DG connection issues and share best practice, a better understanding
of technical constraints and the development of agreed solutions.
For example the government has an obligation to deliver low carbon technology as part of
the EU 2020 targets, and the commitment under the Climate Change Act for the UK to
reduce its emissions by at least 80% from 1990 levels by 2050.
See Section 5.3.4.1.
Ofgem Performance Report: Electricity Distribution Company performance 2010 to 2015.
December 2015 identifies that the DNOs spent less on network investment and that the final
RAV value was lower than forecast.
PÖYRY MANAGEMENT CONSULTING
October 2016
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