The UK has set a legally binding target of achieving net zero by 2050. Doing that will require a significant increase in the use of renewable energy, but the way that generators have to pay for the cost of using the transmission network can be a real disincentive to investing in such projects.
Energy suppliers and generators pay transmission network operators for the right to use the transmission system, which includes the cost of maintaining and building the network’s physical infrastructure. They then pass all of these costs on to billpayers. These ‘TNUoS charges’ (Transmission Network Use of System) total approximately £4.4billion per year.
The regulatory background to all of this is complex. Indeed, the Court of Appeal, which has plenty of experience with difficult and complex matters, has described the system as being of “byzantine complexity”. And this matters, because TNUoS charges raise extremely important questions for renewable energy projects, both now and in the future.
The system is designed to ensure that each generator pays a level of TNUoS charges that reflects how much it costs them to use the network, as this incentivises them to use it efficiently. Electricity generators therefore pay a locational charge as part of their TNUoS costs, which reflects the cost of electricity being added to the grid at different geographical points. As a result, a renewable energy project in the north of Scotland, which can generate a lot of energy but is far away from the places where most of it is consumed, might pay more than its counterparts in England and Wales.
The rules also include a process to be used when a company wants to change its transmission charges: it has to propose amendments to the underlying regulatory code documents, and these proposals are then assessed by the regulator, Ofgem. Several such proposals are currently progressing through the system.
For Ofgem, the decisions are difficult. Amendments can have significant consequences for electricity generators (depending on their business model, type of generation, and physical location), and the regulator needs to weigh up many difficult and competing issues. For example, should charges be even more closely linked to location? This would provide an incentive to shift generation away from areas where grid capacity is low, but in practice that means discouraging new investment in renewable energy projects and potentially even threatening the UK’s net zero ambitions.
The mere possibility of such changes is already having an impact on renewable energy projects throughout the UK, both those that are planned and those that are already in operation. And generators also face the prospect of another challenging development: wide-ranging changes to the process by which generators can access and connect to the grid. It all creates uncertainty for those developing and investing in renewable energy projects.
Ofgem recognises the need for strategic reform to transmission charging, including improvements to the current TNUoS system. It has also acknowledged that charges can be unpredictable, and that this may hinder investment decisions. In May 2022, it created the TNUoS Task Force, with a brief to focus on making transmission charges more stable and predictable. The Task Force has modelled several different options, including both fixing and flexing TNUoS charges, but these ideas have yet to be implemented in a meaningful way.
At a time when the focus really needs to be on clean energy deployment, the consistency, predictability and overall fairness of UK transmission charges are issues which need to be resolved in short order if we are to keep progress moving in the right direction.
Shepherd and Wedderburn is headline sponsor of All-Energy, the UK’s largest renewable and low-carbon energy exhibition and conference, taking place in Glasgow on 14–15 May 2025. Visit the All-Energy hub to find out more: shepwedd-allenergy.com.