Getting a development connected to the electricity network can seem a daunting task. In this month’s engineering services cost model, Davis Langdon Mott Green Wall provides some guidelines to the process
Provision of an electricity connection has both a physical and contractual element. Physically, it involves the design, planning and construction of electrical infrastructure (cables, switchgear, civil works), while contractually, it requires legal agreements to be drawn up (construction, connection, adoption).
At the planning stage, typically RIBA Stage C, the site developer should consult the local distribution network operator’s long-term development statement, which will identify potential connection points. This information is normally readily available from the operator (the “host”) for a small fee and should provide an early indication of whether the network may need to be reinforced.
During the planning stage, the developer should discuss its proposals with the host. Relatively simple connections for single building supplies are straightforward, but more complex schemes may require a feasibility study to assess connection options and provide indicative costs for the contestable and non-contestable work elements (the latter may only be carried out by the host). It is important to ask for indicative costs to be shown separately.
The need for such a study should be established as early as possible. The developer can either ask the host to carry it out, or contract an independent third party with knowledge of the site a potentially quicker process.
Inevitably, the host will charge for the provision of certain information and feasibility work, and this can run to thousands of pounds. Therefore, it is important that the developer and host agree the scope of the study and its deliverables at the outset. Once the developer has agreed to pay the costs, the host has up to 28 days to produce the information. If the developer’s proposal is considered complex, the host gets more time. There is no time limit on when the host should provide the developer with an estimate of cost, but once the scope is agreed, the host is expected to provide its estimate within 10 days. In all circumstances, it is important to understand the nature of the complexity and to agree a date for provision of requested information at the outset.
The design stage, typically RIBA Stage D, is the point at which the developer submits its formal connection request to the host. It is important to follow the host’s specific procedures because if any information is missing this will lead to delays. The host is expected to provide a documented application process to help the applicant get it right.
The convention is to request a Section 16/16A connection where the terms are standard and non-negotiable. The alternative is a Section 22 connection2 offer, where the terms are fully negotiable. If the Section 22 route is chosen be careful, as disputes over Section 22 agreements cannot be referred to the regulator after the connection agreement has been signed; a post-contract dispute will have to be pursued as a civil action. It is always best to request a Section 16/16A offer before considering the Section 22 option. If the host offers terms in accordance with Section 22 and not Section 16/16A, then the reasons for this, together with the implications, need to be fully understood before making a contractual commitment. The host is required to produce a firm offer as soon as practicable within three months of receiving the developer’s completed connection request.
The firm connection offer should include:
- terms of the connection offer
- terms of construction agreement
- terms of adoption agreement
- terms of any lease, wayleave/easement
- terms for reservation of capacity
- date for capacity and connection availability
- the point of connection to the host network
- site plan with cable routes and substation location
- full electrical design of any reinforcement works
- full civil design for connection works
- programme of works
- charging statement
- stage payment schedule
- risk register
- note regarding communication with other utilities
On receipt of the firm offer, the developer generally has 90 days to accept its terms. If for any reason the developer and host are unable to reach agreement of the terms, the developer should seek specialist advice. In extreme circumstances, it may be necessary to refer an issue to regulator for determination – but, be warned, this process can take up to 16 weeks.
One of the key decisions affecting the way the connection process proceeds is whether the developer wishes to introduce competition into the procurement process by appointing a third party to design and construct the contestable connection works. In these circumstances, the developer can requisition a non-contestable quotation from the host or ask the third party to do so on its behalf. The host is obliged to provide information within standardised time frames against which its performance is monitored by the industry regulator, Ofgem.
Contestable works are those that may be carried out either by the host or by an approved contractor, on the developer’s behalf. Broadly speaking, the host will make the connection to its network for the new supply and undertake any upstream network reinforcement works. All works downstream from the point of connection to the host network into the site and to each building are contestable works. So the extent of the contestable works can vary significantly depending on where the host designates the point of connection. Alternatively, the developer can request an independent licensed network operator (IDNO) to adopt assets constructed by the third party.
If the developer decides to contract a third party for the contestable works, it is the developer’s responsibility to ensure these works meet the host’s network adoption requirements – although this responsibility may be passed to the third party. It is advised that the developer informs the host of the source and specification of equipment to be procured and installed by the third party, and seeks formal approval for the works design and programme directly from the host before the works begin. The host will charge for all approvals work but should complete any approvals within 10 working days for connections below 22kV and 20 working days for connections above 22kV. If the developer has chosen to contract an IDNO, similar procedures will apply.
Before the site can be energised, host and developer must enter into a connection agreement and an adoption agreement (if the connection is to be adopted by the host).
The connection agreement covers the conditions under which the site is entitled to be physically connected to the host network. Generally, these take a standard form with scheme-specific annexes.
The adoption agreement details the terms under which the host will take control and ownership of the contestable connection assets as part of its wider network. The adoption agreement includes details of the responsibilities of all three parties (the host, the developer and the third party constructing the contestable connection works).
Reinforcement works may be needed to increase network capacity to meet a site’s projected demand. In terms of the capacity made available by reinforcement, the following possible scenarios arise:
Where reinforcement works are necessary for sole use by the developer, the developer is charged the full cost. Sometimes the most economic method of reinforcement may introduce spare network capacity, and the developer may receive a rebate where this spare capacity is absorbed by subsequent developments. However, the original development will only qualify for a rebate for up to five years after the connection is completed.
Where reinforcement works are necessary but also cater for the host’s future network requirements, the developer is charged for a proportion of the cost in the form of a capital contribution. This is calculated using cost apportionment factors for security (the ratio of capacity requested to that which is made available) and fault level (the ratio of fault level contribution of connection to that which is made available).
The charges levied are attributable to those reinforcement works undertaken at one voltage level above the connection voltage only. That is, if connection voltage is 400V then costs are chargeable for reinforcement works undertaken at the next highest voltage, which is usually 11kV, and not for works conducted at the next highest voltage again, which is usually 33kV. These deeper network reinforcement costs are recovered as part of the system charges built into the electricity supply tariffs.
Developer and host should maintain a close dialogue on the progress of any reinforcement works, as these must be coordinated with the construction programme to enable commissioning of the connection for site energisation.
The issue of reinforcement works is a grey area and can often be misinterpreted by both developer and host. It may be advisable to use a specialist third party to provide general guidance and, if necessary, liaise with the host.
The cost of the developer’s connection depends on the nature and extent of the works. The distance between the site and the host’s network, the size of customer demand in relation to available capacity (and hence the potential need for reinforcement), customer-specific timescales and to an extent market value of raw material and labour, are all significant factors.
As part of the firm offer from the host, the developer is provided with a charging statement that includes charges to be levied for the following items:
- Assessment and design to identify and design the most appropriate point on the existing network for the connection.
- Design approval to ensure design of a connection meets the safety and operation requirements of the host.
- Non-contestable works/reinforcement to include circuits and plant forming part of the connection that can be undertaken by the host only, including land rights issues and consents.
- Contestable connection works to include circuits and plant forming part of the connection that can be undertaken by approved contractors or the host.
- Inspection of works to ensure that works are being constructed in accordance with the design requirements of the host.
- Commissioning of works to include circuit outages and testing that will ensure that connection is safe to be energised.
- Charges for assessment and design and design approval are paid in advance with the formal connection request. For a development of 100 dwellings in the South-east of England, charges are in the order of £2000-3000 and £1000-2000 respectively, whereas a commercial development requiring a capacity of 7MVA will attract charges in the order of £15,000-20,000 and £7000-10,000 respectively.
The table on the previous page shows typical rates from which approximate costs can be compiled for a connection estimate. In some circumstances, in addition to the cost of the physical connection works, there may be costs associated with operation, maintenance, repair and replacement of the new or modified connection. These are known as O&M costs and are chargeable as capitalised up-front costs where the developer requests a solution in excess of the minimum necessary to provide the connection. For example, where extra resilience is requested for a connection, over and above that which the host is obligated to provide, O&M costs can be levied but only for the extra resilience element, not the total cost.
Another way of sharing costs is for developers to make a joint connection request. However, a separate legal agreement, in addition to the connection agreement with the host, is normally required, setting out the liabilities of both parties should either not be able to proceed with the joint connection.
Building Sustainable Design
Original print headline: "Joined up thinking" (Building Services Journal, March 2008)