Ofgem to cut electric vehicle chargepoint grid connection costs

The plans were announced by Ofgem, the British energy regulator, as part of its drive to support the UK’s transition away from the use of petrol- and diesel-powered vehicles to those powered by electricity. Ofgem’s measures follow a report published by the Competition and Markets Authority (CMA) in July in which the CMA urged Ofgem to “make changes to speed up grid connections, invest strategically and lower connection costs” to support the transition to electric vehicles.

“Currently, grid connection upgrades in areas where there is grid constraint are paid for by the company requesting the grid connection,” said Becca Aspinwall, specialist in energy market regulation at Pinsent Masons, the law firm behind Out-Law. “Grid upgrades vary significantly in price and can be detrimental to the financial model of a project. Ofgem aims to move the grid upgrade cost from the company requesting the grid connection to consumers, through energy bills.”

“Distribution network operators (DNOs) have five-yearly pricing review mechanisms which allow them to forecast upgrades that will be required in that five-year period, as well as allocating cost and pass-through to consumers. For the next price control period, RIIO-ED2 April 2023 to March 2028, DNOs will have to plan and cost likely electric vehicles demand into their forecast. This is positive news for the electric vehicle market. However, these measures will not be in place until the next price control period, which is still 18 months away. In addition, even at the start of that period, it will not be possible to predict location demand, so network operators will need to use the uncertainty mechanisms within RIIO-ED2 to request additional spend throughout the five-year period,” Aspinwall said.

“As grid upgrades can take years to approve and implement, there is a real question mark over whether the grid will be where we need it to be by 2030,” she said.

The sale of new petrol or diesel cars and vans will be banned in the UK from 2030. The Climate Change Committee (CCC) has estimated that there are just 500,000 “pure” electric vehicles on the road in the UK currently, but that this will grow to 14 million by the end of the decade. The number of public electric vehicle chargepoints will grow over this period from 25,000 to around 370,000, according to the CCC, with a further 19 million home chargepoints also estimated to be required to meet the demand.

According to Ofgem, between 20% and 30% more electricity may be needed to support the use of electric vehicles in 2050 compared to today’s levels. It acknowledged that this raises questions for how the grid will cope and said it believes the rapid uptake of electric vehicles will be “the most significant change in our energy sector over the next 10 years”.

In its report, Ofgem identified further measures beyond grid reinforcements that it said would help the energy system cope with the rapid uptake of electric vehicles. It intends to mandate that all new chargepoints should be capable of “smart charging” and said it would identify and remove barriers to the use of vehicle-to-X (V2X) technologies, which enable electric vehicles to export electricity back to the grid or to a building or battery.

Ofgem said: “Smart charging can enable better use of network assets by shifting demand away from peak periods. It can also help to make best use of renewable power by charging when the wind is blowing, and the sun is shining. A further potential benefit comes from Vehicle-to-X (V2X), which is the umbrella term for EVs exporting electricity, to the grid (V2G), the home (V2H) or buildings (V2B), such as a business premises, during periods of high demand or low electricity supply. V2X enables EVs to act as mini local power plants.”

Aspinwall said: “This all sounds positive, but will it come forward quick enough to allow the UK to achieve the rapid uptake of electric vehicles (EVs) that the government hopes for by introducing the 2030 diesel and petrol ban? For this to be achievable, the market will not only be relying on grid reinforcements and V2X technology. It will also be relying on new business models that encourage and engage consumers.”

Ofgem said that “the development of new EV-related energy products and services should help enable decarbonisation at lowest cost for all consumers”, and that if these are “implemented successfully” it will bolster competition, drive down costs and deliver benefits for consumers.

Aspinwall said: “Ofgem expects the market to offer new products to consumers, such as the purchase of ‘miles’ from a transport provider rather than kWh from an energy company or rewards for smart charging. As we’ve already seen in the e-mobility market, this is likely to encourage joint ventures between energy companies, transport providers, car manufacturers and retailers, among others.”

“The next five years are going to be exciting for the e-mobility market, with lots of potential for new players to make their mark in the sector,” she said.