Electricity network constraints and the 2024 New Build Heat Standard: research

Research looking into the network constraints issues associated with the electrification of heat for domestic new build developments. The focus of the work was on connection costs for these developments, how the cost is defined, and apportioned to the relevant stakeholder.

4 Costs of new energy infrastructure

This section discusses the costs of establishing energy infrastructure for new housing developments and the impact of zero emissions heating. This includes findings from stakeholder engagement, literature review and the modelled case studies.

4.1 Allocation of costs

Costs for new energy infrastructure is allocated across different organisations as part of the connection process, with each organisation recovering their investments at a later stage.

4.1.1 Allocation of costs to housing developers

A developer will pay the infrastructure costs for a new build, and potentially any reinforcement costs to provide the capacity required to meet the developer's energy demands on site.

The costs allocated to a developer depend on the type of work being done:

  • Assets installed for the sole use of the development: A developer will pay the full costs of any contestable work (any new assets that are installed) that are installed for the sole use of the development [6] [7]. This can be a judgement on the part of the DNO; where the asset being installed releases additional capacity and there is likely to be an additional connection in the area, then the costs may be able to be shared. Alternatively, even if an asset releases additional capacity and is not being taken by the development, if it is located in an area of low development the costs may be allocated entirely to the developer. This is payable to the DNO or ICP installing the assets. This does not include any reinforcement work higher up in the network.
  • Reinforcement of network at or directly above the connection voltage level: For the connection voltage level or the next higher voltage level a developer will pay a proportion of any reinforcement costs needed to provide additional capacity to accommodate the development site (assuming that the released capacity is not solely taken up by the new development) [6] [7]. Assets are installed at set ratings which can be larger than the individual development requirement. Reinforcement costs can be expensive and prohibitive for a new development, and there are rules in place with the network operators to calculate how much proportion of the total cost the developer will pay. This apportioned cost is calculated based on the capacity the developer has requested, and what new network capacity the DNO provides. Any payments for reinforcement work owed by the developer are payable to the DNO directly or through the IDNO or ICP if they are managing the connection.
  • Reinforcement at more than one level above the connection voltage: The developer will not pay reinforcement costs associated with network reinforcement beyond the voltage above the connection voltage level [6] [7].

The developer may receive an asset value payment from the adopting IDNO to help offset the cost of energy assets. This asset value varies from site to site based on the IDNO's view of the potential revenues from operating the network and the perception of the competition to win the right to adopt it. Stakeholders cited cases where no asset value was offered at all, right through to a value greater than the asset installation and connection costs.

Going forward, the developer will recover their investment in the development as a whole by selling the homes or retaining the properties as a rental asset. While the intention will be to recover costs and make a profit, the sales and rental prices that can be achieved will be driven by the wider property and rental markets, meaning that it is not generally the case that increases in costs are 'passed on' to eventual occupiers. Instead, an increase in costs at a particular development generally results in a reduction of profits for the developer.

4.1.2 Allocation of costs to ICPs

Where the contestable work is being provided by an ICP, the developer will pay for the work they undertake. The ICP is also likely to be the interface to the DNO when dealing with the connection costs, and any asset value payment from an IDNO. These asset payments and costs may be combined together in a single offering to the developer at the beginning of the project or in response to a tender.

The ICP may take on a proportion of the risk of the works, including any unexpected changes and cost increases in the work the ICP is undertaking, or the reinforcement works carried out by the DNO. This will be defined in their contract with the developer.

4.1.3 Allocation of costs to IDNOs

An IDNO will pay an asset value to adopt assets as part of their network onsite. As mentioned above, an IDNO will offer an asset value based on the predicted income they will receive for operating the assets going forward.

The asset value payment and subsequent operation and maintenance costs are recovered through DUoS charges payable by every connected electricity customer as a small proportion of their bills. There are regulations governing the amount that can be recovered through DUoS, as an individual customer does not have the choice to select their network operator. Therefore, DUoS is regarded as relatively fixed, and any variation in costs must be absorbed by the IDNO.

4.1.4 Allocation of costs to DNOs

Depending on what has been requested, the DNO quote will include only the non-contestable works (a 'point of connection' application), or both the contestable and non-contestable works (a full application).

When a connection request is made to the DNO directly by the developer, there are two types of schemes considered in the design stage of the network. These are listed below [6] [7].

  • Minimum Scheme: This is the connection design solution with the lowest overall capital cost, which provides the required capacity for the site. This represents the minimum amount of work that is required to establish a connection cost to the developer.
  • Enhanced Scheme: In certain circumstances the network operator may design an Enhanced Scheme, which includes additional assets or larger assets beyond those required to simply supply the new connection. This might be to serve future expected loads, or to release capacity for network security or efficiency reason. This decision can be driven by the DNO or the developer.

The apportioning of costs by the DNO is as follows:

  • Assets installed for the sole use of the development: As discussed above, theassets installed for the sole use of the development are paid for by the developer (potentially through an ICP or IDNO).
  • Apportioned reinforcement costs: Reinforcement costs will be apportioned to the developer based on the portion of released capacity the individual development requires. The remaining costs are 'socialised' (recovered through DUoS of every connected customer to that DNO network).
  • Reinforcement costs covered by the DNO: If reinforcement is needed higher up in the network stream, the DNO will pay the full reinforcement costs and recover this through DUoS.

4.1.5 Ofgem Significant Code Reviews

The Targeted Charging Review (TCR): Significant Code Review (SCR) was launched by Ofgem to determine how network charges should be set and recovered. [22].Ofgem had concerns that the current framework network operators use to recover their investment may result in inefficient use of the networks and unfair outcomes for consumers. The review was set up to respond to increased adoption of generation technologies such as solar panels by businesses and homeowners, who are still relying on the grid for part of their supply. The review was launched in August 2017 and Ofgem published their decision in December 2019.

One of the areas affected by the changes are residual charges. These are charges designed to recover sufficient network costs such that that network companies can recover their allowed revenue as defined under Ofgem's price control. Residual charges, which can vary between DNOs, make up around 50% of DUoS charges and around 10-15% of electricity bills, and are currently based on energy consumption from the network.

Under the current arrangement, customers who have onsite generation can reduce their demand from the network, thereby reducing or even avoiding payment of residual charges. Ofgem's decision is that distribution residual charges will change from one based on energy demand to a fixed charge on all households and businesses. The charges will be applied to final demand users (i.e. not including generation-only or storage-only connections). These fixed charges will be applied in bands, according to agreed capacity or energy demand and voltage level.

The TCR is complete, and the above changes (and other changes from it) will come into effect from 2022 onwards.

A second review is underway; the Electricity Network Access and Forward-Looking Charges SCR [23]. One aspect under consideration is the connection charging boundary definition; this describes the elements of any reinforcement work that may be apportioned to the connecting customer. The review is considering narrowing this boundary, for example, so that connecting customers contribute only to reinforcement at the connecting voltage level (currently this is the connecting voltage level and one voltage level above, plus any transmission reinforcement). This may considerably reduce the costs that some developer might pay to connect to the DNO network and will reduce some uncertainty in the connection costs. The review was launched in December 2018 and is currently ongoing.

4.2 Estimating costs associated with new energy infrastructure

The network infrastructure and connection costs can be broken down into three main categories.

  • Network reinforcement: The costs of connecting additional load onto the existing network will vary between sites and is dependent on the size of the load to be connected (i.e. the size of the development and selection of technologies), the available capacity of the local network to support additional load, and the work needed to release additional capacity if required. While the size of the additional load is based on site design within the control of the developer, the available local capacity and required work can vary greatly between locations. A site that has spare capacity to accommodate a new development will incur less costs than for a network where network upgrades are required. Reinforcement costs can vary from very low to millions of pounds, even for a given development size, and therefore the likely required reinforcement costs are an important consideration when considering the location and design of a development.
  • Network connection route: The connection route between the infrastructure on the site of the development and the point of connection to the existing DNO network can vary in distance, complexity and cost between sites. The costs of routes are driven by the length of connection, and topology of the route, for example the need to cross waterways or roads. The need to cross privately owned land can also add cost and complexity with the need to organise access and wayleaves. Where the route is long and complex, this can make up a significant proportion of the infrastructure costs. Note that the scale of additional demand will rarely impact these costs significantly, unless they impact the required network connection point.
  • Energy infrastructure onsite: The costs of building the energy infrastructure onsite to serve the development are more predictable as they are less likely to be affected by factors beyond the control of the developer. These costs are more directly driven by the requirements and design of the development itself.

When considering requesting capacity from the DNO, there a number of tools available on the DNOs website which gives an indication of how much spare capacity could be available to accommodate the capacity requested, or whether the network is heavily constrained.

Examples of these are heat maps, which show the DNO network layout and indicate areas that can more readily facilitate new connections [24] [25]. The electrical infrastructure in any region is provided in the Long-Term Development Statement (LTDS). The LTDS gives an estimate of the demand on the network at each location, the generation capacity, and forecasted spare capacity in the next five years [26] [27]. For each network licence area, the local DNO maintains, updates and publishes a new LTDS every year. Note that both the heat maps and LTDS only provide an indication of how much capacity could be available. A full assessment is performed when a DNO receives a connection request which may produce results that are not reflected in these tools.

Each DNO in GB under the terms of their licence condition are required to maintain and publish a connection charging methodology document. This gives an indication of the range of costs that are likely to be incurred when installing electrical assets as part of the connection offer. This includes individual item costs for substations and cable routes, as well as the assessment and design charges for different complexities of connection request. The site-specific nature of much of the work means there is significant uncertainty associated with these costs, hence they are represented in the connection charging methodology by wide ranges [6] [7].

4.2.1 Range of costs associated with case studies

The technical modelling work package of this project considered a set of case studies in order to explore the range of costs associated with the installation of energy infrastructure for new developments. Refer to Appendix A2 for more information on the definition, assumptions and approach for the modelled case studies.

The modelled case studies are described in Table 4‑1. The table also shows the modelled electricity infrastructure and connection costs for the base case assumption of gas heating.

Table 4‑1: Modelled case study descriptions and results for gas heating assumptions

Case study description

Assumed required infrastructure

See Appendix A2 for more detail

Modelled energy network connection costs

Private housing development

300 homes made up of a mixture of 3, 4 and 5-bedroom homes, and 20% affordable homes, in the North Glasgow area. This is a suburban location, with a strong local electrical network.

Onsite equipment includes one substation and service connections to each property. The connection route is assumed to be 30m.

£262k to £586k

£90k to £150k

Social housing development

60 homes made up of 30 semi-detached houses (3, 4 and 5-bedroom), and 30 flats (1 and 2 bedrooms, 3-storey), in the Dunfermline area. The electrical network in this area is highly constrained, with very little remaining capacity before significant network upgrades are required

Development is connected via the low voltage network, requiring no additional substations. A 100m connection route is assumed.

£49k to £105k

£54k to £72k

Small scale rural development

Small development of 10 detached homes in a remote rural area. The modelled network capacity is based on a substation near the Scottish border with England.

Development is connected via a new pole mounted transformer. The connection route is 200m long.

£40k to £86k

£9k to £12k

The real development case studies that were provided by stakeholders were compared to the examples above to validate the model.

There are several notable costs that are not included in the scope of this project, such as the costs of the heating technology appliance, installation costs and the operational costs of the resulting heating system. These costs are important to consider when comparing costs of heating technologies and are included in the scope of a separate project commissioned by the Scottish Government; Costs of Zero Carbon Heat Research carried out by Ramboll.

Any costs to divert existing network routes on the site of the development can be significant, but as they are not impacted by the choice of heating technology they have not been considered here.

4.2.2 Impact of zero emissions heating technologies

Each of the modelled case studies were assessed to estimate the impact of heating technology choice on the energy asset costs. The technologies included in the assessment are shown in Table 4‑2.

Table 4‑2 Modelled case study heating technology definitions



Storage heaters

Assumes storage heating systems are installed in each home with an electrical emersion heater to provide hot water. It is assumed that the storage heating and emersion heaters are managed to minimise their contribution to the peak demand on the electricity network.

Heat pumps

Assumes that an air source heat pump is installed in each home with an electrical emersion heater to provide hot water. It is assumed that the heat pump and emersion heater is managed to minimise their contribution to the peak demand on the electricity network.

District heating

Assumes that a district heating system will provide space and water heating across the development. This is fed by bore hole ground source heat pumps and a thermal store. Private housing development

The modelling of the private housing development of 300 homes found that the infrastructure costs varied moderately with the change in heating technology. This is illustrated in Figure 4‑1 below.

Figure 4‑1 Range of costs for different heating technology options for a larger private development site. Costs include installation of energy infrastructure.
A chart showing the energy infrastructure costs for different heating technology options for the modelled case study of 300 homes.

The conclusions from Figure 4‑1 are as follows below:

  • District heating: District heating can be shared across the whole development and optimised to minimise its impact on the electricity network, by minimising the impact on the peak demand of the site. For this reason, the modelled electricity network connection size increased by only a small margin compared to the gas case, and no additional electrical infrastructure was required. The electricity infrastructure costs for the district heating case on is £269k to £607k, which very similar to the electricity connection costs for a development that only includes gas heating. However it is noted that district heating systems have the most significant installation costs of the technologies modelled; whilst a detailed review of these costs is outside the scope of this project, to enable a fairer comparison, Figure 4‑1 provides an indication of the installation costs of a district heat network.
  • Heat pumps: The modelled electricity network connection size for a site with heat pumps is markedly higher than for gas heating, and as a result, additional infrastructure is needed at site to accommodate the increase in capacity. This results in an increased electricity network cost compared to gas and district heating systems, with total costs ranging from £326k to £763k.
  • Storage heaters: Storage heaters have the biggest impact on the electricity connection size out of all of the modelled heating technologies. This is because storage heaters are less efficient that heat pumps and will require a bigger connection to the site. As a result, there is a substantial increase in costs, with the total ranging from £381k to £913k. Social housing development

The location of the social housing development is based on an area that is heavily constrained, and where the release of additional electrical network capacity is costly. This means that while the costs related to the electricity infrastructure when gas heating is assumed are moderate, any of the electricity heating options require reinforcement of between £4.2m and £6.5m. While this might seem like an unusual case, the stakeholder engagement revealed two real case studies in very similar circumstances (see Appendix A2.3 for more information):

  • Dunfermline case study: Dunfermline is a high development area, with frequent additional developments being built and connected. This means that the area has developed to the limits of the local network. Recently a development of 63 homes was sized carefully to use up the last of the existing capacity in order to be approved for connection. Any additional developments will require reinforcements costing approximately £5m. Note – the social housing development network assumptions are based on the Dunfermline network before the latest development was quoted.
  • Maiden Hill case study: The initial design of this development included only modest low carbon technologies, and the connection request resulted in a modest quote from the DNO. However, when the site was re-designed to include low carbon technologies in 30% of the planned properties, the DNO assessment and design process revealed a new high voltage substation would be required alongside complex high voltage cabling, costing approximately £7.5m.

The reinforcements triggered by exceeding the modest available capacity will release significantly more capacity than is needed by this development. As this is a high development area, the DNO is likely to be able to charge the developer for only the capacity they need, with the rest of the asset value being covered by other developments. A portion of the total asset value will also be socialised through DUoS charges.

This means that from the developer perspective, the cost to establish electricity network connection for the electric heating options is reduced to between £400k and £1m. While this is still a significant cost, it may be the difference between a commercially viable project and a project being abandoned. Note that if the network was not a high development area, with no evidence of significant development in close proximity, then the asset would be classed for the sole use of the development and the developer would be charged the whole cost. This was the case for Maiden Hill, leading to the developers and other stakeholders needing to find alternative solutions. This is detailed further in Appendix A2. Small scale rural development

For the small scale rural development, the selection of heating technology has an impact on the network connection size, however the variation in demand is not enough to result in additional network infrastructure required, and as a result, the electricity infrastructure costs do not change across the heating technologies.

4.2.3 Impact of electric vehicle charging

The impact of adding EV charging to a development will increase the demand at the site, thereby putting more pressure on the network. The technical model includes the option of adding EV charging to every property onsite, both using standard and smart charging.

Smart charging uses optimisation control to manage the charging load away from the time of peak demand, thus minimising the impact on the maximum demand of the development. Some stakeholders assume no additional capacity is required to connect smart charging, relying on the charging management to avoid an impact on peak demand. For this project, we have assumed a reduced impact on maximum demand compared to the standard EV charging.

The impact on electricity infrastructure costs with EV charging and smart EV charging is provided below.

  • Private housing development: For each of the heating technology option, the impact the inclusion of standard EV charging increases the network infrastructure costs of the site with an average increase of approximately 20%. Smart charging reduces the impact on the peak demand at the site, meaning that in some cases this increased cost can be avoided.
  • Social development: The inclusion of EV charging alongside gas heating would exceed the existing remaining electrical capacity on the network, resulting in the need for the significant network reinforcement. This means that the only modelled case that avoids this cost is gas heating and no EV charging.
  • Small scale rural development: Where the heating technology is storage heaters or heat pumps, the addition of EV charging (standard or smart) means that a larger transformer is required, increasing the infrastructure costs. This is also the case for standard EV charging with district heating, although using smart EV charging means that the additional cost is avoided.


Email: 2024heatstandard@gov.scot

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