Ofgem Locational Charges and Regulatory Siting Levers Under Reformed National Pricing

Consumer Scotland is the statutory body for consumers in Scotland. Established by the Consumer Scotland Act 2020, we are accountable to the Scottish Parliament. The Act defines consumers as individuals and small businesses that purchase, use or receive in Scotland goods or services supplied by a business, profession, not for profit enterprise, or public body.

Our purpose is to improve outcomes for current and future consumers, and our strategic objectives are:

• to enhance understanding and awareness of consumer issues by strengthening the evidence base
• to serve the needs and aspirations of current and future consumers by inspiring and influencing the public, private and third sectors
• to enable the active participation of consumers in a fairer economy by improving access to information and support

Consumer Scotland uses data, research and analysis to inform our work on the key issues facing consumers in Scotland. In conjunction with that evidence base we seek a consumer perspective through the application of the consumer principles of access, choice, safety, information, fairness, representation, sustainability and redress. The Consumer Principles are based on frameworks that have been developed over time by both UK and international consumer organisations. Reviewing policy against these principles enables the development of more consumer-focused policy and practice, and ultimately the delivery of better consumer outcomes.[1]

Consumer Scotland welcomes the opportunity to respond to Ofgem’s Call for Input (CfI) on Locational Charges and Regulatory Siting Levers under Reformed National Pricing (RNP) on behalf of domestic and small business consumers in Scotland. Following the government’s decision in July 2025 to retain a single national wholesale electricity market,[2] the CfI considers various options to provide stronger signals for the efficient siting of new assets and improve the overall operational efficiency of the electricity system in Great Britain. It sits within a wider package of reform under the RNP programme which also includes a review of the arrangements governing balancing, settlement, and dispatch;[3] and the adoption of a more strategic and co-ordinated framework for the future electricity system.[4]

Against that background, the CfI is principally concerned with how generator-facing locational transmission network charges for new assets could be reformed so that they better support delivery against strategic planning outputs and the future planned network. However, the CfI also considers:

• the treatment of demand and storage
• the possible role of intrazonal signals within Strategic Spatial Energy Plan (SSEP) zones
• wider design questions around predictability and accuracy
• the use of complementary levers such as the use of non-firm connections and deeper connection charges
• the treatment of legacy and transitional (LAT) assets

At present, Transmission Network Use of System (TNUoS) charges are recovered from generators and demand users to cover the costs of building, maintaining, and expanding the electricity transmission network via a combination of locational and cost-reflective forward-looking charges, and residual charges which are socialised by connection type across generation and demand. The majority of these costs are currently allocated to demand-side parties,[5] of which the majority is recovered as residual charges.[6] These manifest on consumer bills as fixed costs and tend to be recovered via the standing charge. A smaller share of total TNUoS charges is allocated to generation, with these costs recovered as locational charges which are ultimately passed on to consumers through the wholesale price and/or the cost of government’s investment support schemes.[7] These costs consequently manifest on consumer bills as variable charges that are normally internalised within the unit rate.

For demand, locational charges are currently floored at zero in charging regions where there is excess generation relative to demand, and turn positive in charging regions with excess demand relative to generation. For generators, locational charges are positive in charging regions where there is excess generation and turn negative in charging regions with excess demand. As such, TNUoS locational charges are intended to act as an economic signal to influence where new assets connect, and are strongest for generation. The greater the physical transport distance between generation and demand, the higher the locational charge. However, the quantum of locational charges that a project will face over time is highly volatile due to the way that the current transport model treats shifting network power flows, the exhaustion of network headroom by later entrants, and fluctuations in cost-recovery volumes. Ultimately, this means that assets are currently exposed to a locational signal with poor predictability, leading to enhanced financing risk premia and undermining the reliability of the locational signal itself. While Consumer Scotland does not consider that predictability requires perfect foresight, we do consider it important that risk is sufficiently transparent, intelligible, and bounded to support efficient siting and investment decisions, and that future charging exposure is reasonably foreseeable at the point that key investment decisions are made.

The case for change set out in the CfI is premised on the suitability of the current charging arrangements for a system in which generation, storage, demand, and network investment are increasingly shaped by strategic planning, and where anticipatory network build plays a greater role in delivery against the strategic plan than under the current – largely reactive – approach to reinforcement. In that context, Consumer Scotland agrees that charging arrangements which, while commercially rational for individual projects, do not adequately reflect planned network capacity; structural constraints; or the wider system implications of where assets choose to locate, risk leading to avoidable constraint costs; inefficient reinforcement; and wider costs that would ultimately fall on consumers.

However, while we therefore agree on the merits of greater alignment between charging and strategic planning, we do not consider that alignment with strategic planning should be treated as an end in itself. The RNP Delivery Plan makes clear that charging reform will sit alongside enduring reforms to the connections regime, network build, investment support mechanisms, and other siting levers.[8] In our view, that means charging should be viewed as part of a wider package, and reforms assessed not only by whether they sharpen signals or by how well they align formally with strategic planning outputs, but by whether they are likely to improve siting and investment decisions in a way that delivers genuine consumer benefit. This includes a clear distinction between reforms that reduce underlying system costs and reforms that mainly reallocate risk or value between market participants, and is particularly important where government is considering whether Connections Capacity Thresholds (CCTs) should be set above the core strategic pathway in order to mitigate against project attrition and preserve competition.[9] In that context, the relevant distinction is not simply between development ‘within’ or ‘outside’ the plan, but between the core strategic pathway, any managed tolerance around it, and development that is materially beyond that tolerance.

In considering the case for change, the CfI does not surface issues in isolation. For example, questions on interzonal charging are closely linked to the role that government intends enduring reforms to the connections regime, planned zonal and technology capacities, and investment support mechanisms to play under RNP. Similarly, the appropriate treatment of demand and storage relies in part on whether locational signals are useful where the relevant parties can respond to them in practice, while questions on predictability, stability, and legacy and transitional (LAT) arrangements centre on how any new framework can remain intelligible and investable for projects that cannot easily respond to late changes in charging exposure.

Taken together, these interdependencies reinforce the need for charging reform to be more closely aligned with the future planned network, more coherent with the wider RNP framework, and more clearly focused on reducing whole-system costs. In our view, the strongest reforms will be those that combine strategic alignment, consumer-facing efficiency, predictability, competition, and proportionate implementation. Throughout our response, we place particular weight on whether the proposed approaches are likely to reduce total system costs for consumers, whether they remain predictable and transparent enough to support efficient investment decisions, and whether they are likely to operate coherently with the wider framework of strategic planning, enduring reforms to the connections regime and – where relevant – investment support mechanisms.[10]

Q1. Do you agree with our assessment criteria for locational charging options?

The CfI sets out five criteria that Ofgem proposes to use in the appraisal of different design choices for locational charges. These are:

• Deliverability: the degree to which the complexity of locational charges influences their ability to be implemented within pre-set timelines and a reasonable budget
• Efficiency: the degree to which locational charges deliver overall benefits for consumers and a fair allocation of costs and risk, while appropriately reflecting system costs and/or network costs
• Enabling competition: the degree to which locational charges enable competitive dynamics in the system
• Investability: the degree to which locational charges are predictable, transparent, and allow assets to respond in a timely manner
• Wider system value: the degree to which locational charges align with SSEP outcomes

The government’s RNP framework places the SSEP at the heart of a more strategically planned electricity system. Updated on a three-year cycle, it will set out a pathway for the deployment of electricity and hydrogen generation and storage across Great Britain in the period between 2030 and 2050. This will include detail on the optimal capacities and delivery timeframes for such assets across 19 onshore and 19 marine zones [Figure 1].

Optimised for cost across demand and high-level network needs, the SSEP will also inform the design of the Centralised Strategic Network Plan (CSNP) for the electricity, methane and hydrogen transmission networks. Taken together with enduring reforms to the connections regime, this has the potential to significantly alter the role of locational charges for generation customers. In this context, we consider that it is reasonable that Ofgem should assess charging options in part by reference to how well they support delivery of the SSEP and the future planned network. However, we do not consider that alignment with the SSEP should be treated as an end in itself.

From a consumer perspective, the purpose of the SSEP is to support a more efficient and co-ordinated energy system that reduces total system costs over time. In our view, the most important function of the assessment criteria is therefore to test whether locational charging options are likely to improve siting and investment decisions in a way that delivers genuine consumer benefit, rather than simply improving formal alignment with a spatial plan. This is particularly important in a system where the SSEP will be updated periodically; where some flexibility around the core SSEP pathway may be necessary to mitigate against project attrition and preserve competition; and where charging will need to work alongside other levers such as connections reform, network build, and investment support mechanisms.

Figure 1: The 19 marine and 19 land zones that will be used in the draft SSEP[11]

While the five assessment criteria set out in the CfI appear to capture the main concerns that any reform of locational charging will need to address, we therefore consider that the criterion of efficiency should be factored with particular care. In our view, efficiency should be understood not only as sharper or more cost-reflective locational signals in principle, but as a reduction in total system costs to consumers – taking account of investment, network, constraint, and balancing costs in the round. Where Ofgem assesses options against efficiency and wider system value, we would therefore expect it to distinguish clearly between reforms that deliver genuine whole-system savings and reforms that mainly reallocate risk, cost, or value between market participants.

The CfI makes no reference to how Ofgem considers that the assessment criteria would be weighted when trade-offs occur, but consistently emphasises the importance of stable, predictable, and transparent charging. While we consider consumer-facing efficiency and wider system value to carry greater weight, we acknowledge that these considerations remain central to whether locational charging can influence siting decisions in practice: a signal that is theoretically more accurate but difficult to anticipate, difficult to explain, or too volatile to inform siting decisions is less likely to improve outcomes for consumers than a signal that is less granular but more intelligible and actionable.

The wider RNP framework is intended to combine the benefits of a strategically planned system with an appropriate enduring role for markets in driving efficiency, innovation, and cost competition. Necessarily, this means that charging reform should be assessed not only by whether it supports delivery against the strategic plan, but also by whether it preserves sufficient scope for competition to improve consumer outcomes – including where some managed flexibility above the core SSEP pathway may be needed to mitigate against project attrition, or to avoid fixing the cost base of the system too early. Similarly, Ofgem’s assessment of proposals’ deliverability needs not only to factor implementation complexity and administrative burden, but also the extent to which reforms will operate coherently with the full suite of siting and investment levers.

Balancing these factors will be key to the success of these reforms. However, from a consumer perspective, we consider that the principal test should remain whether each option is likely to support the delivery of the SSEP and the wider RNP package in a way that is predictable, proportionate, and genuinely beneficial to consumers. In our view, the assessment criteria will therefore be most beneficial if they are used not simply to test plan alignment in the abstract, but to assess whether locational charging reforms are likely to reduce total system costs, improve whole-system efficiency, and support an orderly and investable transition to a more strategically planned electricity system. To help support these outcomes, Ofgem could also:

• Define success in consumer terms, via clear metrics for total constraint/balancing cost reduction, carbon impacts and system operability
• Ensure transparency by publishing modelling assumptions, sensitivities, update cycles, and an explanation of how SSEP/CSNP inputs translate into charges
• Implement appropriate mechanisms to support predictability, for example through charge‑setting / stabilisation only where this demonstrably reduces inefficient risk premia without locking in misaligned signals that later impose costs on consumers
• Provide appropriate competition and proportionality safeguards, by avoiding designs that raise barriers for smaller participants or reduce market diversity.

Q2. Do you have a preference for any of the five options? If so, why?

The CfI sets out five options for the design of locational charges between SSEP zones (i.e. interzonal charges) for new generation assets.[12] The options range from incremental refinements to the current charging arrangements, to more transformational change. They also vary in the nature of the investment signals they provide to developers: some directly reflect underlying network costs, while others more explicitly align with wider system impacts identified through the SSEP. As a result, each interacts differently with the assessment criteria set out above.

The five options are:

Option A: Targeted changes to the current charging regime

This option would introduce targeted changes to the existing framework for calculating generators’ transmission network charges, aimed at improving predictability and alignment with the SSEP. The CfI suggests that such changes could make Use of System charges less volatile and allow them to be set against a forward‑looking assessment of both reinforcement need and planned network investment. While notionally simpler to implement than the other options set out in the CfI, Ofgem acknowledges that this option is limited in the extent to which it would allow charging to align with strategic planning assumptions, accurately reflect real (cf. projected) network capacity, or address the limitations of the current transport model.

Option B: Network Utilisation Impact Charge

This option would retain the broad economic principles which underpin the current charging framework (i.e. that charges should reflect long-run incremental transmission network costs) but would replace the current transport model with one designed to better reflect the availability of spare network capacity. Ofgem notes that this model could be based on a forward‑looking assessment of both reinforcement need and planned network investment to encourage better alignment with the SSEP.

Option C: System and Constraints Impact Charge

Under this option, generators’ transmission network charges would be based on long‑term modelling linked to wider system planning outputs, incorporating forward-looking projections of network constraint patterns and planned network investment. The CfI suggests that this could strengthen spatial alignment with the SSEP while offering a more transparent link to planned system and network development.

Option D: Metric‑based charge

This option would set generators’ transmission network charges using simplified proxies based on SSEP alignment or the impact of the given project on network constraint patterns. The CfI notes that while such charges may be relatively simple to implement, translating a simplified metric to a financial charge would introduce considerable subjectivity to the charging regime.

Option E: Plan‑based auction pricing

Under this option, charges would be set in each SSEP zone by auctioning off SSEP‑aligned capacity for new connections. The CfI suggests that this would provide transparent, market‑based valuations of spare network capacity which could be used to set connection and/or Use of System charges.

Consumer Scotland’s view

Based on the information set out in the CfI and our understanding of the challenges presented by the current transport model, Consumer Scotland considers that Options B and C appear to strike the best balance between Ofgem’s assessment criteria. For example, we consider the utilisation‑aware, forward‑looking approach set out in Option B is more likely than the incremental changes outlined in Option A to discourage siting decisions that increase structural congestion and encourage the utilisation of planned capacity, and is thus better placed to lead to a reduction in avoidable constraint management and balancing costs over time. Equally, Option B’s retention of an approach which is anchored in network modelling avoids the introduction of more subjective proxies of system value, such as those implied under Option D. As such – and provided the inputs and assumptions to the modelling underpinning Option B are sufficiently transparent and subject to appropriate governance – we consider that investor confidence is likely to be stronger under Option B than Option D, and therefore the risk that consumers would ultimately face the costs of opaque design choices via enhanced financing risk premia can be better avoided.

From a consumer perspective, the attraction of Option C lies in its focus on supporting whole system efficiency. For example, its use of a model where charging is aligned with the SSEP and CSNP, and reflects long‑run structural constraints and wider system impacts, appears well targeted at the underlying drivers of redispatch and constraint costs. In that respect, it appears most closely aligned with the broader consumer interest in reducing the underlying costs of operating the future system, and a more complete response to the case for change set out in the CfI.

Taken together, Consumer Scotland considers that Option C may offer the strongest fit with the objective of reducing total system costs. However, it is also more dependent on modelling choices and appropriate counterfactuals than Option B. This suggests a need for stronger consumer value safeguards if net reductions in total system costs – not simply a reallocation of risk between parties – are to be adequately demonstrated. Transparency, robust governance, and appropriate evaluation of design choices are therefore likely to be important determinants of the success of such reforms. Where those conditions cannot be met, Option B appears to offer the more proportionate basis for reform.

Q3. For each of the options presented, what do you see as the key costs, benefits, and system‑wide implications given the case for change set out in Chapter 2?

From a consumer perspective, the key test for any charging reform is whether it is likely to reduce total system costs over time, rather than simply reallocating risk and revenue between market participants. Consumer Scotland therefore considers that potential reforms should be assessed not only in terms of the sharpness, accuracy, and strategic alignment of the locational signals they provide, but also by whether they are likely to improve actual siting decisions in a way that is transparent, investable, proportionate, and capable of being implemented without undermining competition or increasing consumer costs through excessive complexity or the introduction of avoidable financing risk premia.

In an electricity system where strategic spatial planning is set to play an increasingly significant role, and enduring reforms to the connections regime will factor the system value of a project as assessed against technology-specific zonal capacities set out in the SSEP, charging is not the only – nor necessarily even the primary – lever available to influence siting. The CfI also notes that charges and connection offers will combine to play an important role in incentivising assets not to commission ahead of network readiness or materially in excess of projected capacity requirements. As a result, we do not consider that locational charges will necessarily need to play as big a role in influencing siting decisions or managing project sequencing as has historically been the case; if enduring reforms to the connections regime and the SSEP’s technology-specific zonal capacities already perform much of the ‘first-order’ sequencing function, the role of charges may become more of a complementary means by which to refine those outcomes by:

• reinforcing plan alignment
• signalling the relative value of using planned spare capacity
• discouraging investment that would materially increase transitional system costs
• fine-tuning outcomes where queue management and connection reform alone may not be sufficient

We therefore suggest appropriate caution is exercised when considering the role that reformed charges can or should play in supporting system optimisation, and that future charges do not become an overly blunt or punitive device to solve problems that may be better addressed through the connections regime or other siting and investment levers.

Against that background, our view of the five options set out in the CfI for reformed charges for new generation assets is as follows:

Option A: Targeted changes to the current charging regime

The principal benefit of Option A is that it represents the least disruptive change from the current charging arrangements. Retaining the broad structure of the current charging methodology while making targeted adjustments (for example, by reducing the number of charging zones from 27 to 19 to align with the SSEP, or by setting charges against a more forward-looking assessment of transmission network capacity) could improve predictability and make implementation more straightforward than more significant reforms. However, in our view such limited reforms are unlikely to fully address the case for change; indeed, the CfI acknowledges that incremental change of this kind may result in a relatively crude means by which to reflect spare capacity or strategic plan alignment. It therefore follows that if the underlying charging regime largely continues to reflect a world in which the network is treated as fully utilised and reinforcement need is driven primarily by incremental transport distance, there is a risk that the charges faced by generators continue to poorly reflect structural constraints and remain poorly aligned with the timing of capacity delivery under the SSEP and CSNP.

Option B: Network Utilisation Impact Charge

By retaining the principle of charging against long-run incremental network costs while moving towards a methodology that can reflect spare capacity and the planned future network, Option B appears materially better aligned than the current regime with a world in which network development is increasingly shaped by strategic planning cf. incremental responses to individual siting decisions.

The primary benefit of Option B is that it has the potential to send a clearer signal to locate where the network is either structurally underutilised or where the SSEP is directing network investment to accommodate additional capacity, without departing entirely from a charging framework that market participants already understand. In principle, this should improve alignment between commercial siting factors and broader system needs, while also reducing the likelihood that investors face charges that sit in tension with the SSEP. From a consumer perspective, this is important because better alignment between charging and planned capacity should reduce the risk of avoidable constraints, inefficient reinforcement, and transitional costs that would otherwise feed through into bills.

Option B also appears better suited than Option A to support more efficient project sequencing. If enduring reforms to the connections regime and the SSEP’s technology-specific zonal capacities already do much of the ‘first-order’ sequencing function of managing which projects progress and when, the value of a Network Utilisation Impact Charge (NUIC) is its ability to complement cf. replace or duplicate those other levers, by helping to distinguish between locations or circumstances where additional build is consistent with efficient use of planned capacity and locations where it would be more likely to raise consumer costs through earlier or more persistent constraints.

We note however that the benefits of Option B are likely to depend heavily on how the methodology is operationalised. The CfI indicates that a more forward-looking Long-Run Marginal Cost (LRMC)-type approach would require enhanced modelling and clearer governance of the underlying assumptions. If those assumptions are not sufficiently transparent or stable, the resulting uncertainty may weaken investor confidence and increase financing costs, to the detriment of consumers.

Overall, Consumer Scotland considers that a NUIC is likely to offer the most promising balance between system value, consumer benefit, investability, and deliverability, if the conditions necessary for a System and Constraints Impact Charge (discussed below) cannot yet be met.

Option C: System and Constraints Impact Charge

Consumer Scotland considers that Option C may offer the strongest long-run fit with the underlying objective of reducing total system costs. Of the options presented, it appears most directly designed to reflect the wider system costs associated with siting decisions and project sequencing, including expected constraint patterns and future network development linked to wider system planning outputs. By reflecting the long-run costs associated with structural constraints and the wider locational value of generation in a system modelled over time, Option C appears capable – at least in principle – of internalising some of the broader consumer costs that arise when assets locate in ways that increase congestion or require more costly system operation. In that respect, it appears most closely aligned with the broader consumer interest in reducing the underlying costs of operating the future system, and a more complete response to the case for change set out in the CfI.

We also consider that the wider reform context may strengthen the case for a System and Constraints Impact Charge. If enduring reforms to the connections regime and the SSEP’s technology-specific zonal capacities already do much of the ‘first-order’ sequencing function of managing which projects progress and when, this allows charging to focus on signalling the broader system value of different locations. In that context, we consider that Option C may provide the most coherent long-run basis for aligning locational charging with the wider strategic framework under RNP.

However, in our view the consumer value of Option C depends on several important conditions being met. The CfI notes that a System and Constraints Impact Charge would rely on system modelling over a multi-year period; that it would represent a more significant departure from the current charging arrangements; and that it would require decisions on how to deal with issues such as local circuit charging and the relationship between modelled charges and actual network delivery. It also raises the possibility that if the network is not built in the way assumed, or if system conditions materially diverge from the strategic plan, the resulting charges could send confusing or inefficient signals. In our view, this means Option C would only command confidence if it can be implemented in a way that is sufficiently transparent, predictable, and proportionate; and if Ofgem can demonstrate that the resulting signal is reducing underlying system costs rather than mainly reallocating congestion-related risk or value between parties. As a minimum, we consider that would require strong governance of its modelling assumptions, robust sensitivity testing, and a clear framework for evaluating outcomes post-implementation.

Option D: Metric-based charge

The attraction of a metric-based approach is its relative simplicity. Compared with more modelling-intensive methodologies, a charge based on transparent proxies (e.g. the degree to which development in a zone is materially ahead of or behind the core SSEP pathway, or a simplified measure of the generation-demand balance within a zone) may be easier to communicate, easier to understand, and easier to implement. This could be particularly valuable if the goal is not to replicate the full economic logic of a system model, but to provide a clear and limited ‘top-up’ signal designed to address a specific, residual issue that cannot be adequately addressed through the core charging methodology or other siting and investment levers.

While Consumer Scotland is less persuaded by Option D as a standalone basis for locational charging, we do see potential value in its use as a targeted ‘top-up’ signal in limited and appropriate circumstances. In our view, the most obvious potential use for a metric-based charge would be in helping to refine project sequencing or plan adherence at the margin. For example, if enduring reforms to the connections regime and the SSEP’s technology-specific zonal capacities already ensure that only a certain volume of projects can progress within a zone, a simple metric-based signal might still have value in differentiating between circumstances where additional projects are materially ahead of network readiness and circumstances where they remain consistent with the efficient use of planned capacity. Similarly, where a more sophisticated core methodology does not fully capture sequencing-related costs and benefits, a narrowly tailored metric-based overlay could potentially help reduce the risk of inefficient project clustering or herding.

Consumer Scotland recognises that the translation of a metric into a financial charge may introduce a degree of subjectivity into the charging arrangements. A metric-based approach is also – by definition – a simplification, and if used too broadly it may therefore become too blunt an instrument to appropriately track genuine system costs. There is also a risk of duplicative or conflicting signals if a metric-based charge is layered on top of a more detailed methodology without a clear policy rationale. For all of these reasons, we would be cautious about relying on Option D as more than a supplementary design element, for use in limited and clearly defined circumstances where additional consumer value can be clearly demonstrated from its use.

Option E: Plan-based auction pricing

In theory, auctions can provide a market-based means of revealing willingness to pay for access to scarce zonal capacity, and could therefore offer a strong mechanism for prioritising those projects that place the highest value on connecting in a given location. If well designed, this could preserve an element of competition within the market, while also tying connection outcomes more closely to the capacity volumes determined by the SSEP.

From a consumer perspective, the central question is what kind of information auctions would actually reveal. In our view, a plan-based auction would be a good way to discover the private willingness of developers to pay for access to a zonal capacity allowance, but this does not necessarily reveal the social or whole-system value of locating an asset in that zone. Put differently, price discovery via plan-based auctions would primarily be a mechanism for revealing scarcity rents and commercial valuations of zonal capacity, rather than consumer value.

The question of who captures the value created by scarcity is also relevant. If auctions simply discover that access to a particular zone is commercially valuable, the resulting auction prices may function less as a signal to improve system efficiency and more as a mechanism for extracting scarcity value from developers. To the extent that auction premia then feed through into project financing costs, consumers may therefore end up paying more without any commensurate improvement in siting decisions relative to what a more directly cost-reflective approach to charging could have achieved.

The CfI outlines additional risks and uncertainties with Option E, including potentially complex interactions with the wider connections regime and with investment support mechanisms such as Contracts for Difference (CfDs) and the Capacity Market. In our view, the nature of those interactions could increase uncertainty for developers and make auction outcomes harder to price into investment decisions in an efficient way. We also note the risk that, where prices reflect scarcity value rather than the underlying cost of providing network access, they may operate more as an additional project cost than as an effective network signal. Where projects rely on investment support mechanisms, some or all of that cost is likely to be internalised in bid prices or otherwise reduce competitive pressure in government auctions, with possible implications for clearing prices.

From a consumer perspective, an auction design that increases investor uncertainty or project financing risk; interacts negatively with investment support mechanisms; or works poorly in zones with relatively few projects, could ultimately increase the cost of delivering the required generation mix set out in the SSEP. Moreover, if enduring reforms to the connections regime and technology-specific zonal capacities already provide a robust mechanism for rationing access to planned capacity, the case for introducing a further auction-based variable becomes less clear. In that context, the marginal benefits of auction pricing would need to be clearly demonstrated relative to its complexity and risk.

We therefore currently view Option E as the least compelling of the five options set out in the CfI – not because market-based allocation is undesirable in principle, but because we do not consider that the case has yet been made that it would deliver superior whole-system and consumer outcomes relative to better-governed charging reforms. While a cost-reflective methodology may be imperfect, if it is transparently linked to spare capacity, planned reinforcement, or wider system constraint impacts, investors can at least understand the broad logic of the signal and incorporate it into long-term decision-making.

Q4. How does each option perform against the assessment criteria set out in Chapter 2?

The five assessment criteria set out in the CfI are:

• Deliverability: the degree to which the complexity of locational charges influences their ability to be implemented within pre-set timelines and a reasonable budget
• Efficiency: the degree to which locational charges deliver overall benefits for consumers and a fair allocation of costs and risk, while appropriately reflecting system costs and/or network costs
• Enabling competition: the degree to which locational charges enable competitive dynamics in the system
• Investability: the degree to which locational charges are predictable, transparent, and allow assets to respond in a timely manner
• Wider system value: the degree to which locational charges align with SSEP outcomes

In our view, these criteria should not be treated as wholly separate or as carrying equal weight. From a consumer perspective, the central issue is whether an option is likely to improve siting and investment decisions in a way that delivers genuine consumer benefit, with stronger alignment to strategic planning judged as a means of helping to achieve that objective rather than as an end in itself.

Option A: Targeted changes to the current charging regime

In our view, the main advantages of Option A lie in its familiarity and relative simplicity. Incremental changes of this kind may also improve consistency with strategic planning at the margin and may reduce implementation risk – particularly when compared with more significant reforms. Because it builds on existing arrangements, it may also be easier for investors to understand and for institutions to implement within a shorter timeframe.

However, because Option A would retain the existing TNUoS framework, it would remain constrained by the limitations of the current transport model. To the extent that it therefore does not materially improve the treatment of planned network capacity, future network development, or the wider system implications of siting decisions, it is likely to do less than the other options to reduce avoidable reinforcement and constraint-related costs. In our view, Option A therefore appears weaker against the criteria of wider system value and long-run efficiency than the more significant reforms.

Option B: Network Utilisation Impact Charge

The principal strength of Option B is that it appears capable of improving the treatment of spare and planned network capacity while remaining grounded in a network-cost framework. In that respect, it appears better aligned than the current regime with a system in which network development is increasingly shaped by strategic planning rather than solely by incremental responses to individual siting decisions. This should improve the alignment between the locational signal, the future planned network, and the strategic planning context described in the CfI, while reducing the risk of avoidable constraints, inefficient reinforcement, and wider transitional costs.

We also consider that Option B aligns well with the wider RNP framework; if enduring reforms to the connections regime and the SSEP’s technology-specific zonal capacities already perform much of the ‘first-order’ sequencing function, then the value of Option B is its ability to improve the quality of the residual locational signal, by helping to distinguish between locations or circumstances where additional build is consistent with the efficient use of planned capacity and locations where it would be more likely to raise consumer costs through earlier or more persistent constraints. We note however that its performance will depend on the treatment and governance of assumptions, and the frequency of updates; if the underlying methodology is not sufficiently transparent or stable, Option B’s potential investability benefits could be weakened. Nevertheless, subject to those conditions being met, Option B appears to perform relatively well across the criteria and may offer the most proportionate basis for reform where the conditions for a more ambitious system-wide approach cannot yet be met.

Option C: System and Constraints Impact Charge

Of the options presented, Option C appears most directly designed to reflect the wider system costs associated with siting decisions, including expected constraint patterns and future network development linked to strategic planning outputs. In conceptual terms, this appears most closely aligned with the objective of reducing the underlying system costs that consumers ultimately face. In our view, this gives Option C the strongest long-run fit with the objective of reducing total system costs.

We note however that the performance of Option C against investability, competition, and deliverability depends on several important conditions being met. Because it depends more heavily on broader system modelling, it raises more significant questions around transparency, governance, update frequency, and the treatment of divergence between assumed and actual network development. There is also a risk that a highly complex or opaque methodology could advantage better-resourced participants or reduce confidence in the fairness of the locational signal it creates.

In our view, Option C is therefore more contingent than Option B, and will only command confidence if it can be implemented in a way that is sufficiently transparent, predictable, and proportionate; and if Ofgem can demonstrate that the resulting signal reduces underlying system costs rather than mainly reallocating congestion-related risk or value between parties. Subject to these conditions being met, Consumer Scotland considers that Option C may offer the strongest long-run basis for reform.

Option D: Metric-based charge

Consumer Scotland sees some merit in Option D as a supplementary mechanism to the core charging framework, in cases where there remains a specific, residual issue that cannot be adequately addressed through the core charging methodology or other siting and investment levers.

The principal advantage of Option D is its simplicity. In that respect, it may perform relatively well on deliverability and ease of communication. However, because it relies on simplified proxies, there is a risk that its reliance on metrics means it may not be able to appropriately track the underlying drivers of consumer cost. There is also a risk of subjectivity in both the choice of metric and the translation of that metric into a financial charge. A poorly designed metric could also impose arbitrary or uneven outcomes across technologies or business models.

Option E: Plan-based auction pricing

Consumer Scotland is not currently persuaded that Option E would align investment more effectively with the SSEP than more directly cost-reflective approaches. While it may appear attractive against a narrow interpretation of competition or market-based price discovery, revealing developers’ willingness to pay for scarce access is not the same as identifying which configuration of assets minimises total system cost for consumers.

The CfI identifies concerns around timing, investor certainty, liquidity, and integration with the connections regime and investment support scheme auctions. In our view, these are not immaterial concerns, particularly in zones or technologies where participation may be limited; where participation is thin, auction-based approaches weaken outcomes by amplifying market power or favouring larger and better-capitalised parties. We do not consider that a weak or distorted auction becomes beneficial to consumers simply because it is market-based. The wider RNP framework is also explicit that strategic planning will sit alongside an appropriate role for markets, not that all locational choices should be determined through market-based allocation. In our view, the case for adding a further auction layer is therefore weaker where it introduces substantial additional complexity and myriad co-dependencies without a clear consumer benefit that cannot be achieved in other ways.

Overall assessment

Taking the criteria together, Consumer Scotland considers that Option C may perform most strongly against the criteria of wider system value and long-run efficiency, provided the associated issues around transparency, predictability, governance, and proportionality can be adequately addressed. However, Option B appears to offer the strongest overall balance across the full set of criteria where those conditions cannot yet be met, combining stronger alignment with the future planned network with greater practical intelligibility and deliverability. Option D may also have a limited role as a supplementary refinement tool where there is a clearly identified residual issue.

Q5. Are there options not considered here which we should be exploring? If so, please provide detail.

Consumer Scotland does not take a view on this question.

Q6. What are your views on the possible changes outlined in Option A? What other alterations could be made to the current methodology to support the SSEP and deliver benefits? Please include views on:

• How far a modified transport model could be well aligned with the SSEP.

• To what extent a modified transport model should be used to reflect spare capacity and whether it could do so effectively.

Consumer Scotland recognises that the changes outlined under Option A offer some benefits relative to the current charging arrangements. For example, the introduction of targeted changes to improve predictability, align charging zones more closely with the SSEP, and make greater use of forward-looking assessments of available network capacity should improve consistency with strategic planning while avoiding the implementation challenges inherent in more significant reform. However, by retaining the existing long-run marginal cost framework for TNUoS charges, Option A would remain constrained by the limitations of the current transport model – including its ability to factor broader structural constraints or the whole-system implications of where assets locate over time. In our view, this means that Option A is unlikely to improve alignment with the SSEP as fully or as coherently as the more substantive options for reform set out in the CfI.

We do not consider that incremental alterations to the current transport model are likely to provide a strong basis for reflecting wider system and constraints impacts, or for delivering the full consumer benefits associated with stronger alignment between locational signals and strategic planning. However, if Ofgem were to pursue alterations to the current methodology under Option A, Consumer Scotland would see most merit in changes that:

• align charging zones more closely with the SSEP spatial framework
• place greater weight on forward-looking assessments of available network capacity
• improve the treatment of underutilised or planned network capacity where this can be done transparently and without undue methodological complexity
• improve predictability, including via update frequencies that expose investors to an appropriate degree of risk and the extent to which charges should be fixed or stabilised around key investment decisions

Q7. What long-run costs should NUIC reflect, particularly in the context of the growing share of network investment made anticipatorily through the CSNP rather than responding directly to the connection of new assets?

The case for change set out in the CfI is that locational charging should better align investment with the SSEP and the future planned network, while helping to reduce avoidable long-run costs to consumers. If Option B is taken forward, Consumer Scotland therefore considers that a Network Utilisation Impact Charge (NUIC) should primarily reflect the forward-looking long-run costs associated with the efficient use of existing and planned network capacity, rather than costs derived from the historical configuration of the network or from a model that assumes reinforcement is triggered only by individual new connections.

With a growing proportion of load-related transmission network investment being directed by strategic planning and incurred ahead of need (cf. in reaction to individual connection applications), we consider that a NUIC should reflect the extent to which a new project makes use of - or contributes to exhausting - planned spare capacity on the network, and the extent to which its location is likely to increase the need for future reinforcement beyond that already provided for through the CSNP and related strategic planning exercises. Put differently, we consider that the relevant long-run costs that a NUIC should seek to reflect are not simply the costs of assets that already exist on the system, but the incremental long-run network costs associated with using and eventually depleting efficient planned capacity in particular locations. We also consider that where anticipatory investment has been directed by strategic planning to support the efficient delivery of the future system, treating those costs as if they were wholly attributable to marginal projects in a particular zone would overstate the cost signal and undermine alignment with the SSEP – the principal result of which would be to reallocate risk between investors rather than improve consumer outcomes.

While we do not think that a NUIC should seek to recover the full cost of anticipatory investment through marginal locational signals, this does not mean that we consider that anticipatory investment should be treated as if it were fully sunk, and therefore irrelevant to locational charging. Indeed, if the charging methodology were to ignore the scarcity or opportunity value of planned capacity altogether, there is a risk that locational signals would become too weak to meaningfully differentiate between efficient use of strategically planned capacity and development that would bring forward avoidable additional costs. In our view, the relevant long-run costs for NUIC are therefore likely to include:

• the incremental reinforcement costs associated with moving beyond efficient planned headroom in a given area
• the opportunity cost of using scarce planned capacity in locations where that capacity has value because it delays or avoids the need for further reinforcement
• where this can be done transparently and proportionately, some reflection of the broader long-run effect of siting decisions on the efficient use of the strategic network plan

Consumer Scotland also considers that the wider reform context is relevant to the treatment of long-run costs under a NUIC. The CfI makes clear that interzonal charging reform will sit alongside enduring reforms to the connections regime; the technology-specific zonal capacities identified through the SSEP; and, where appropriate, the wider use of non-firm connection agreements. In our view, that means that a NUIC does not need to carry the full burden of managing sequencing or aligning development with network readiness; its primary role should instead be to reinforce the efficient use of the future planned network and signal when development in a particular location is likely to increase long-run system costs beyond those already envisaged by the strategic plan. This should help strike a better balance between efficiency and predictability: a NUIC based on the future planned network and the marginal cost of moving beyond efficient planned capacity should provide a clearer and more stable signal to investors than an approach that attempts to allocate large shares of anticipatory investment cost ex post. It should also reduce the risk that charges primarily operate as a mechanism for reallocating the financing risk of strategic network investment, rather than as a tool for improving siting decisions and lowering total system costs over time.

It is however prerequisite that the treatment of these long-run costs is governed transparently. In particular, market participants will need clarity on the baseline network assumptions used in the model, the extent of planned spare capacity assumed to exist in different locations over time, and how the methodology distinguishes between efficient use of that planned capacity and development that is materially above-plan or misaligned with it. Without that clarity, the consumer benefits of a more forward-looking methodology could be undermined by weaker predictability and investor confidence.

Q8. Should the costs of network build determined by strategic planning be recovered on the same basis as the network build required by assets locating outside of the SSEP (and therefore requiring network beyond the SSEP’s optimisation)?

Given the CfI’s emphasis on aligning investment with the SSEP, improving operational efficiency, and maintaining predictable and transparent signals, Consumer Scotland does not consider that all additional network build should be recovered on the same basis. In our view, there is an important distinction between:

• network investment identified through the SSEP as part of the efficient baseline for delivering the future system
• additional investment associated with projects that proceed within a managed tolerance around that baseline, where such tolerance is deliberately allowed to mitigate against project attrition or preserve competition
• network investment required because assets locate beyond that managed tolerance

From a consumer perspective, we believe there is a stronger case for treating strategically planned network build as part of the baseline cost of delivering the future electricity system, rather than seeking to recover it from individual projects on the same basis as reinforcement caused by out-of-plan siting. Where anticipatory investment has been undertaken because it is judged to be the most efficient means of delivering the future system as a whole, attempting to attribute its full cost to marginal projects locating in a manner aligned with the SSEP risks penalising use of capacity that has been consciously created to accommodate plan-aligned development. In our view, that would be more likely to reallocate risk between investors than to reduce total system costs for consumers.

However, we do not consider that strategically planned network build should be treated as entirely sunk or irrelevant to locational charging. The CfI makes clear that locational charges are intended to guide investment towards areas aligned with planned network capacity, and that more accurate signals may need to reflect the availability and value of spare or planned capacity. In that respect, there remains a case for charging arrangements to reflect the marginal opportunity value of using scarce planned capacity, particularly where use of that capacity affects when further investment is required. However, that is not the same as recovering the full cost of the SSEP-aligned network capacity baseline from the projects that happen to connect within it.

Where assets locate materially beyond the core SSEP pathway and any managed tolerance around it, Consumer Scotland considers that there is a stronger case for the associated network costs to be treated differently; in those circumstances, the additional investment is less clearly part of the efficient baseline for the future system and can more plausibly be attributed to siting decisions that depart from the managed RNP delivery strategy. The CfI points to the potential use of complementary levers in such cases, including the use of non-firm connections where connection offers are made in excess of the chosen SSEP pathway or ahead of network readiness. We consider such proposals to be consistent with a framework in which out-of-plan development faces more direct exposure to the incremental costs it imposes, and see them as strengthening incentives for efficient use of strategically aligned network investment.

We would, however, avoid treating this distinction as absolute: there may be cases where an asset that sites outside the SSEP optimisation nevertheless delivers wider system or consumer value, just as there may be cases where ‘within-plan’ development still gives rise to meaningful opportunity costs that the charging framework should recognise (for example, through intrazonal charges). For that reason, Consumer Scotland considers that the distinction should operate as a guiding principle rather than a rigid rule, with the key question in each case being whether the resulting treatment is likely to reduce total system costs for consumers, or simply reallocate costs or risks between different classes of development. In our view, the presumption should be that network build associated with the strategic baseline – and any tolerance applied above this – is recovered more broadly, while additional network expansion associated with development materially beyond any managed tolerance is subject to stronger cost exposure.

Q9. If an LRIC-type methodology were developed for transmission network charging, how could the concepts of (a) time-to-reinforcement and (b) baseline demand projections be adapted in the context of strategic planning and anticipatory network reinforcement?

Consumer Scotland does not take a detailed view on how the concepts of time-to-reinforcement or baseline demand projections should be specified within a Long-Run Incremental Cost (LRIC)-type charging methodology. These are highly technical design questions, and the appropriate treatment is likely to depend on wider methodological and modelling choices. We would, however, expect any such approach to be consistent with the role of strategic planning and anticipatory network investment within the future system, and to be implemented in a way that is transparent, predictable, and proportionate. From a consumer perspective, the key test is whether these concepts improve locational signals in a way that reduces total system costs over time, rather than primarily reallocating cost or risk between market participants.

Q10. Could any other LRMC approaches be used to send a locational signal to support the SSEP or deliver wider system benefits? Please clearly indicate any relevant methodologies, including those applied in other international contexts.

Consumer Scotland does not take a view on this question.

Q11. What additional measures might be required to deliver effective locational signals using the approach in Option C?

Of the five options for the reform of interzonal charges set out in the CfI, Consumer Scotland considers that Option C may offer the strongest long-run fit with the objective of reducing total system costs as it appears most directly designed to reflect the wider system and constraints impacts associated with developers’ siting decisions. Its effectiveness would, however, depend less on the charging methodology in isolation than on the wider framework within which it operates. In particular, the case for Option C would be strengthened where the resulting signal is transparent, predictable, and clearly aligned with the wider strategic planning framework.

A clear priority would be the governance and transparency of the underlying modelling. The CfI indicates that a System and Constraints Impact Charge would rely on long-term modelling linked to wider system planning outputs, including expected constraint patterns and future network development linked to strategic planning outputs. In our view, that means investors and other stakeholders would need much greater clarity on how the SSEP’s assumptions translate into charges, how uncertainty is treated, and how the methodology would respond if actual network delivery diverges from the strategic plan. Without such visibility, there is a risk that the signal becomes difficult to interpret or respond to in practice, weakening both its effectiveness and its consumer value.

Predictability and stability would also be important if a System and Constraints Impact Charge is to influence siting decisions efficiently. The CfI places considerable weight on maintaining investor confidence through stable, predictable, and transparent charging, while also recognising the trade-off between more accurate, cost-reflective signals and the volatility that can arise where charges change frequently or depend on assumptions that evolve over time. In our view, effective implementation of Option C is therefore likely to benefit from measures that give investors sufficient visibility over charges at the point of investment, necessitating:

• careful choices to be made around the frequency with which charges are updated
• alignment with periodic strategic planning cycles
• potentially, some form of charge stabilisation where this can be achieved without materially weakening the locational signal

Effective locational signals under Option C would also require coherence with the wider planning and connections framework. The CfI makes clear that interzonal charging reform will sit alongside enduring reforms to the connections regime; the technology-specific zonal capacities identified through the SSEP; and, where appropriate, the wider use of non-firm connection agreements. In our view, this means that a System and Constraints Impact Charge should not be expected to perform the full sequencing and access-management role on its own. Rather, the charging framework should complement those wider levers by reinforcing the broader structural value of locating in particular places, while allowing the connections regime and other siting and investment levers to do more of the detailed work of managing which projects connect and when. Without that coherence, the charging framework risks creating duplication, conflicting signals, or unnecessary complexity.

We also consider that Option C would benefit from a clear framework for how strategic baseline investment is treated, and for how the methodology distinguishes between within-plan and out-of-plan development. As we have noted elsewhere in this response, Consumer Scotland does not consider that network build undertaken as part of the efficient SSEP baseline should generally be recovered on the same basis as additional network expansion required because assets locate outside – or materially beyond – that strategic optimisation. In our view, Option C is more likely to provide an effective signal if it is clear that the charge is intended to reflect the wider system value and opportunity cost associated with planned capacity and constraints, rather than to recover the full cost of anticipatory strategic investment from marginal within-plan projects.

There may also be a role for complementary measures where development departs from, or runs ahead of, the strategic plan. The CfI notes that non-firm connection offers could act as a backstop where offers are made in excess of the chosen SSEP pathway, or where planned network build is delayed. In our view, measures of that kind may be important where locational charges alone are not sufficient to protect consumers from inefficient costs. This appears especially relevant where the issue is not the long-run locational value of a zone, but the timing of development relative to network readiness.

In any event, we would expect Ofgem to develop a clear post-implementation framework for evaluating the success of Option C. Given the greater sophistication of Option C relative to Options A and B (and indeed, the current charging arrangements), it will be important to demonstrate not only that the resulting charges are more closely linked to wider system impacts in theory, but that they actually improve siting outcomes and reduce total system costs for consumers in practice. We would see value in metrics that distinguish between genuine reductions in underlying system costs and changes that mainly reallocate risks, scarcity value, or revenues between market participants.

Q12. Are there any alternative approaches to integrating SSEP outcomes to send a signal reflecting assets’ wider system impact, including constraints?

Consumer Scotland does not take a view on this question.

Q13. To what extent could a metric-based charge act as a complementary ‘top up’ signal alongside a broader charging methodology, rather than operating as a standalone approach? What challenges would this present?

The CfI makes clear that interzonal charging reform will sit alongside enduring reforms to the connections regime; the technology-specific zonal capacities identified through the SSEP; and, where appropriate, the wider use of non-firm connection agreements. In our view, those wider reforms are likely to already perform much of the ‘first-order’ sequencing function of managing which projects progress and when. Consumer Scotland therefore considers that a metric-based charge is likely to be more useful as a targeted means of refining an alternative charging methodology than as a standalone framework. In particular, we consider that it may have some value were it to be used to address specific, residual issues that are not otherwise appropriately factored by the main charging signal or other siting and investment levers. For example, if a broader interzonal charge were able to capture the long-run value of network utilisation or wider system impacts but did not fully reflect the effect of development running materially ahead of planned capacity in a particular zone, a simple additional metric might help sharpen that signal at the margin. However, the additional complexity arising from the use of a metric-based ‘top-up’ would likely support its use only in limited circumstances, where clear additional consumer benefit can be demonstrated.

The CfI notes that metric-based approaches could be relatively simple to implement. However, it also acknowledges that translating a simplified metric into a financial charge could introduce a degree of subjectivity into the charging framework. This is not an immaterial concern: if any of the metric itself, the threshold at which it applies, or the method used to convert it into a financial charge is not sufficiently transparent and stable, the apparent simplicity of a metric-based charge may not translate into a signal that is sufficiently predictability for investors. In turn, this could weaken the value of the signal and lead to increased financing or development risk, and a net cost to consumers.

There is also a risk that a metric-based top-up becomes too blunt a signal to reflect genuine system value. For example, while a simplified proxy may be capable of signalling that zonal capacity is misaligned with some strategic benchmark, it may not be able to appropriately distinguish between projects that have materially different impacts on network use, system costs, or wider consumer outcomes. This could create charges that are poorly reflective of the underlying drivers of consumer cost, and diminish the effectiveness of the locational signal in driving efficient outcomes.

Q14. What other metric-based approaches might be a suitable basis for setting charges?

Consumer Scotland does not take a view on this question.

Q15. What interactions do you foresee between plan-based auctions for generation, government support mechanism auctions, and the connections regime? What potential implementation risks and mitigations should be considered?

The CfI notes that plan-based auctions would need to be integrated carefully with both the connections regime and the processes which govern access to investment support mechanisms.[13] Such interactions present a risk of overlap between processes that are each influencing which projects proceed, where they locate, and on what commercial basis. In particular, if projects need to take a view simultaneously on support outcomes, locational charging exposure, and access to zonal capacity, there is a risk that those processes create compound uncertainty rather than a clearer investment signal.

Consumer Scotland considers that these interactions could weaken predictability at the point that key investment decisions are made. The CfI repeatedly stresses the importance of predictable and transparent charging, especially where assets have limited ability to re-site once investment decisions are taken. In our view, that concern is likely to be heightened where projects must navigate multiple linked processes (for example: strategic alignment, queue progression, plan-based auction access, and support auction success) before they can proceed with confidence. To the extent that this raises delivery risk or delays efficient investment, consumers are likely to ultimately bear the cost. We also note the risk that, where prices reflect scarcity value rather than the underlying cost of providing network access, they may operate more as an additional project cost than as an effective network signal. Where projects rely on investment support mechanisms, some or all of that cost is likely to be internalised in bid prices or otherwise reduce competitive pressure in government auctions, with possible implications for clearing prices.

The CfI makes clear that interzonal charging reform will sit alongside enduring reforms to the connections regime; the technology-specific zonal capacities identified through the SSEP; and, where appropriate, the wider use of non-firm connection agreements. Given this context, we consider that plan-based auctions also risk duplicating functions that the connections regime is already being asked to perform – particularly where strategic planning and zonal capacities are intended to guide which projects progress and where. If access to zonal capacity is influenced through both the connections process and a further auction layer, projects may face a more complex route to market without clear corresponding consumer benefit.

The CfI also notes that participation in plan-based auctions is likely to be uneven between different technologies and between zones, and it therefore identifies liquidity as an important additional factor that would need to be considered. We agree that where participation is thin, auctions may result in price discovery that is less informative and less robust than in zones with strong competition. In such circumstances, interactions with investment support mechanisms or connection offers may therefore amplify rather than reduce inefficiencies, particularly if projects are successful in one process but not in another.

From a consumer perspective, the concern is that these myriad interactions could increase complexity and delivery risk without delivering greater consumer value than approaches that seek more directly to reflect planned network capacity, network utilisation, or wider system and constraints impacts. This creates risks around duplication, sequencing, predictability, and competition. Unless those risks could be sufficiently mitigated, the case for plan-based auctions therefore appears to us to be weaker than for approaches that send locational signals more directly and with fewer co-dependencies.

Q16. What design features could help ensure that auctions remain workable across zones with very different levels of project interest?

Consumer Scotland does not take a detailed view on auction design. We note, however, that the main challenge in zones with very different levels of project interest is likely to be thin or uneven participation. This may weaken price discovery and increase the risk that outcomes reflect the characteristics of a small number of bidders rather than any robust measure of efficient system value. In our view, that is one of the reasons why the case for plan-based auctions appears weaker than for more cost-reflective approaches to charging.

Nevertheless, if Ofgem were to continue exploring plan-based auctions, we would expect the design to place particular weight on simplicity, transparency, and predictability, especially in zones where participation is likely to be limited. At a minimum, arrangements would need to avoid producing highly volatile or weakly informative outcomes in low-interest zones, and would need to interact clearly with the wider connections regime and any relevant investment support mechanisms. More broadly, we would also expect Ofgem to test whether the objectives attributed to plan-based auctions could be achieved through alternative means with fewer risks and dependencies. From a consumer perspective, the key issue is whether auctions would deliver better siting outcomes and lower total system costs in practice than alternatives that are more predictable and more directly linked to strategic planning outcomes and network use.

Q17. Could alternative mechanisms achieve similar outcomes with fewer risks or dependencies?

Consumer Scotland considers that similar outcomes to those envisaged for plan-based auctions could likely be achieved with fewer risks and co-dependencies via a package of mutually reinforcing measures. In our view, that package would consist of:

• a primary interzonal charging methodology that more directly reflects planned network capacity and, where appropriate, wider system impacts
• the use of SSEP-aligned zonal and technology capacities to guide the nature and scale of development in different areas
• a connections regime that manages project sequencing and queue progression consistently with that strategic plan
• appropriate complementary measures – including but not limited to a greater use of non-firm connections – where development runs ahead of or materially beyond the core SSEP pathway

Taken together, these measures seem capable of achieving many of the objectives associated with plan-based auctions while reducing the risks of duplication, sequencing failure, and weak price discovery surfaced in the CfI.

There is also a clear predictability advantage to relying more on charging and planning mechanisms than on auctions. The CfI repeatedly stresses the importance of charging arrangements that are stable, predictable, and transparent, and recognises that projects have limited ability to re-site once key investment decisions have been taken. In our view, a framework in which locational signals are derived from published charging methodologies and strategic planning outputs is more likely to support efficient decision-making than one in which projects must navigate a further auction process whose outcomes may depend on bidder interest, liquidity, and interactions with investment support mechanisms. To the extent that greater predictability reduces financing risk and helps avoid unnecessary complexity, this is likely to benefit consumers.

Q18. What role should locational charges for demand play in future? Please include views on:

• What types of demand users are likely to be able to respond effectively to a locational investment signal, and why.

• Relevant international examples of demand siting decisions made in response to locational pricing signals.

• What the charging basis for the signal should be if sending locational investment signals is deemed as effective for some types of demand.

• How suitable the options for a locational charge set out above could be for demand, and whether there are other alternative charging approaches that could be applied for demand.

• Whether different charging methodologies should be used for demand and generation, and any practical considerations in doing so.

The CfI considers that material differences in the operational behaviour of demand – and in the ability of demand to respond to locational signals – when compared to generation may mean that charges for demand require to be treated differently to charges for generation.

Consumer Scotland does not consider that all demand customers are equally incapable of responding to a locational investment signal. For example, we consider that there is a stronger case for a locational signal for new and genuinely location-responsive demand, particularly where siting decisions remain open and where the demand in question is large enough to have a material impact on network utilisation, reinforcement needs, or wider system costs. In contrast, for households and many smaller businesses, the scope to respond to a locational charge through siting decisions is much more limited. This suggests that a single locational charging methodology for all demand is unlikely to be proportionate, since a locational charge that cannot reasonably be responded to is not, in practice, an effective investment signal. Consumer Scotland therefore considers that, if locational charging is to play a role for demand in future, it may need to be targeted by customer class; connection type; or investment context, rather than applied on the assumption that all demand customers are similarly able to respond.

As with generation, we consider the wider reform of siting and investment levers – including ongoing reforms to the connections regime, and strategic planning outcomes – provides important context to the role that locational charges for demand may need to play in future. Given this context, if Ofgem considers that some classes of new demand are sufficiently responsive that a locational charge could influence siting decisions – and that such siting decisions are not adequately refined through the use of other levers – then it may, for example, be appropriate to consider whether the current design of locational demand charges leaves the investment signal too weak or asymmetric to perform that residual function effectively.[14] This may be particularly relevant where additional demand in a particular area could improve the utilisation of renewable output or planned network capacity. We would however be cautious about relying on a locational demand charge to do more than it can reasonably achieve; the current floor on locational demand charges was retained in part because Ofgem was concerned about distortive incentives and competition effects arising from the creation of negative demand charges. In our view, such concerns reinforce the importance of looking at the overall package of incentives, rather than assuming that a stronger tariff signal is automatically desirable.

Consumer Scotland also considers that the strategic planning framework should not become an unnecessary barrier to the creation of economically useful new demand. Although the SSEP is intended to guide capacity and siting decisions, it will be revised periodically and cannot be expected to anticipate all economically valuable new demand that may emerge between planning cycles. In our view, this can be mitigated by not assuming that demand beyond the current plan is necessarily inefficient, but to ensure that where such demand seeks to connect, the costs and risks it creates are managed transparently and do not fall inefficiently on consumers. This again points towards a balance of incentives created by the interaction of connections reform, strategic capacity allocation, the appropriate use of non-firm connection offers, and targeted charging, rather than the use of a rigid tariff framework that leaves no room for economically useful development outside the core SSEP pathway.

We do not take a detailed view on specific international examples of demand siting in response to locational pricing, or on the detailed technical design of a future demand tariff. However, in terms of the charging options set out in the CfI, we see the strongest case for demand-side locational signals where they build on approaches that are more directly related to planned network capacity, network utilisation, or wider system and constraints impacts.

Q19. What should be considered when designing a network charge for storage? Please include views on:

Whether or not the TNUoS fees paid by storage should have a locational element, guiding where assets are encouraged to site, in a strategically planned system.

Whether storage should continue to face the same charge as some forms of generation, or whether a more tailored approach should be considered.

If a more tailored approach to storage charging were considered, whether or not differences in storage asset class and characteristics should be reflected. If differences should be reflected, please indicate which, with rationale.

The extent to which the charging options A-E described above might be appropriate and provide useful locational signals to storage.

Whether network charges for storage should reflect the extent and characteristics of network constraints.

Any possible roles for any types of flexible connections for storage assets.

Consumer Scotland does not consider that storage should be treated as a single, homogeneous category, but we would be cautious about assuming that each storage technology or class should face a separate locational charging methodology; provided it remains grounded in the incremental long-run costs or benefits that storage confers on the system and is consistent with the wider strategic planning framework, a common charging regime may be more appropriate even if it proves more favourable to some storage classes than others.

That said, we consider that the usefulness of a locational signal is likely to differ across broad classes of storage. For highly site-constrained assets such as pumped storage hydro, siting factors are likely to include the outcomes of strategic planning exercises, planning and consenting requirements, and interactions with investment support mechanisms; not a marginal network charge. In this context, we would expect the SSEP and related planning tools to do much of the work in identifying where such projects can reasonably be sited in a manner that co-optimises their limited siting options against wider system value. In contrast, for more modular storage assets where fewer physical constraints and co-dependencies exist, an appropriate locational charge may be capable of refining siting decisions and project sequencing at the margin. In our view, where storage is more able to refine its siting, the case for a locational signal is stronger.

All forms of storage can act as both a demand sink and as an exporting asset, and the relevant long-run costs that a locational charge should seek to internalise will therefore depend on the extent to which charging and discharging behaviour places pressure on local circuits or the wider network at particular times. This is particularly relevant in a system where weather-driven renewable output and local network conditions may mean that storage can relieve costs in some periods while contributing to them in others.

Consumer Scotland therefore sees merit in Ofgem considering whether the current treatment of storage within locational charging creates appropriate incentives in the round. For example, the CfI identifies non-firm connections as a possible backstop where projects connect in excess of the core SSEP pathway or ahead of network readiness. In our view, this may be particularly relevant to some locationally agile storage assets more than others: where the firmness of the connection is sufficient to materially limit the costs imposed on the system, the role of the ongoing Use of System charge can reasonably be more limited.

In terms of the charging options discussed in the CfI, and given the need for any locational signal to reinforce rather than act against the effect of other siting and investment levers, Consumer Scotland sees the strongest case for storage-facing locational signals where they are based on approaches that are more directly related to planned network capacity, network utilisation, or wider system and constraints impacts.

Q20. What role, if any, should there be for an intrazonal locational charge? Please include views on:

How effective an intrazonal locational charge might be in directing siting within SSEP zones.

The relative costs, benefits and complexity of such a charge.

The CfI suggests that the 19 SSEP land zones may not be sufficiently granular to capture all relevant differences within a zone. Unmitigated, inefficient siting decisions and project sequencing within zones could therefore lead to unnecessary and avoidable costs. Recognising that meaningful differences in local capacity, local circuit conditions, and the relative value of different connection points may persist within SSEP zones, the CfI therefore surfaces the potential of deeper connection charges and/or the use of an intrazonal Use of System charge as means by which reformed charging arrangements could send a more locationally granular investment signal.

Consumer Scotland does not consider that the existence of within-zone variation is – by itself – sufficient to justify an additional charging layer. The wider RNP framework is explicitly intended to improve co-ordination between charging, strategic planning, and connections arrangements, and in our view the merits of intrazonal charges should be judged by the extent to which they add value beyond the appropriate interaction of those other levers.

An intrazonal signal may therefore be justified where there are material differences between connection points within a zone that are not already adequately captured by the full suite of siting and investment levers, and where those differences are likely to affect total system costs. Where that is the case, an intrazonal charge may help improve siting decisions at the margin and reduce inefficient clustering or avoidable local network costs. It would, however, be important to distinguish between different types of within-zone issue. For example, where the cost difference is mainly project-specific and related to the dedicated works needed to connect an asset, a connection-led charge is likely to be the more proportionate tool. In contrast, where the issue is the relative value of different connection points within the same zone, the merits of an intrazonal locational signal are stronger.

From a consumer perspective, the main benefit of an intrazonal charge is that it could sharpen siting incentives where a purely zonal signal is too coarse to reflect genuine differences in local network value. If it succeeds in directing projects away from locally constrained or higher-cost connection points and towards locations that make better use of existing or planned network capacity, it may help reduce avoidable reinforcement and operational costs over time.

We note however that the benefits of an intrazonal charge need to be weighed against the risks of added complexity, reduced predictability, and overlap with other siting levers. The CfI consistently frames charging reform as a balance between more accurate and cost-reflective signals and the need for stable, predictable, and transparent charging. In our view, an intrazonal charge would therefore only be justified where the expected consumer benefit is sufficiently material to outweigh the added complexity and the risk of overlapping with other locational levers. Consumer Scotland would therefore expect a relatively high threshold for introducing an intrazonal charging layer. In particular, we consider that Ofgem should be able to demonstrate that:

• there is a clear residual within-zone siting problem that remains after taking account of strategic planning and connections reform;
• the relevant within-zone differences are not already reflected sufficiently through connection charges, local circuit cost recovery, or project-specific connection terms;
• the resulting signal is likely to improve siting decisions in a way that reduces total system costs for consumers; and
• the design remains proportionate, transparent, and predictable in practice.

Q21. What role, if any, do you see for deeper connection charges as a tool to influence intrazonal siting decisions? Please include views on:

Whether deeper connection charges could complement or conflict with any of the previously listed inter-zonal locational charging options.

Whether and how issues of fairness could be resolved through a sharing-based connection charge or similar mechanism.

The impact of deeper connection charges on investor confidence or the timing of FID.

Consumer Scotland considers that the strongest case for deeper connection charges is where they reflect costs that are sufficiently project-specific that it is reasonable for the connecting party to bear them more directly. Generally, this is where the relevant differences in system value are site-specific, localised, and connection-led. However, the CfI also discusses the possible use of a sharing-based connection charge or similar approach, in circumstances where local works create benefits or future optionality for multiple users, rather than just the first mover. This is conceptually attractive as a pure first-mover approach may over-expose early projects to costs that are not, in reality, solely attributable to them, and could discourage otherwise efficient investment. From a consumer perspective, this would be problematic if it delayed efficient development or resulted in the under-utilisation of network assets that later users would also benefit from.

For that reason, Consumer Scotland can see merit in a sharing-based approach where deeper connection costs are not purely project-specific, or where a wider group of future users is likely to benefit from the local works being undertaken. In our view, the relevant principle is that parties should face the costs they genuinely impose on the system, but should not be required to bear the full cost of works that are in practice enabling broader or future use of the network.

We would, however, expect Ofgem to be clear about the boundary between what is being signalled through a deeper connection charge and what is being signalled through other charging components. Where a deeper charge is simply used to recover the cost of dedicated or localised works needed to connect a project, it is likely to be easier to justify. However, if it were to be used as a proxy for wider within-zone system value or for broader local network conditions, we consider that there is a greater risk of overlap with intrazonal or interzonal Use of System signals. Consumer Scotland would therefore expect Ofgem to consider how any deeper connection charge interacts with the wider package of siting and investment levers; a deeper connection charge is most likely to support efficient outcomes where it avoids duplicating or conflicting with those levers, or otherwise introducing additional uncertainty that obscures the overall investment signal.

Q22. How should local circuit costs be recovered in future? Please include view on:

The impact of local circuit charges on overall predictability of charges.

Whether local circuit costs should be recovered through connection charges.

Any alternative changes we could make to the recovery of these costs.

Consumer Scotland considers that the treatment of local circuit costs should be guided by the same broader principle applied elsewhere in this response: charges should improve siting and investment decisions in a way that reduces total system costs for consumers, while remaining transparent, predictable, and proportionate. In our view, there is therefore a strong case for local circuit costs that are clearly project-specific and connection-led to be recovered through connection charges rather than through ongoing Use of System charges.

Connection-led recovery is likely to be preferable where it improves the actionability of the locational signal. If local circuit costs are closely related to the choice of connection point, then presenting those costs more explicitly through the connections process may provide a clearer signal to developers than embedding them in a more diffuse ongoing charge. In principle, this would also reduce the risk that ongoing locational charges become overly complex by trying to recover highly site-specific costs that are better represented at the point of connection.

That said, there are likely to be circumstances where allocating all local circuit costs to the first connecting project through an upfront connection charge would not be appropriate. In particular, where local works are likely to provide broader or future network value, or where they create benefits or future optionality for multiple users, a pure first-mover approach may over-expose early projects to costs that are not, in reality, solely attributable to them. That may discourage otherwise efficient investment and reduce the effective use of network assets that later users would also benefit from. In such cases, a sharing-based approach or some other mechanism of broader cost recovery may better support consumer welfare than a strict project-by-project allocation of local circuit costs. There may therefore be merit in a hybrid approach to local circuit cost recovery, where the more obviously project-specific element of local circuit costs is recovered through the connection charge, and any element that is more appropriately understood as enabling broader future use is recovered on a wider basis.

The main risk with local circuit charges is the extent to which they are volatile, opaque, or difficult to estimate in advance. In our view, if local circuit costs are to be recovered through connection charges, investors should have a sufficiently clear view of those costs early enough in the development process to inform siting decisions. If instead those charges are highly uncertain, or depend on assumptions that can materially change very late in the development cycle, they may weaken investor confidence and delay efficient investment. For that reason, Consumer Scotland would expect Ofgem to consider whether any changes to local circuit cost recovery should be accompanied by greater clarity, standardisation, or forward visibility in the way those costs are calculated.

Q23. Would you expect the benefit of a more efficient locational siting incentive to justify the complexity of introducing an intrazonal use of system charge?

Consumer Scotland considers that the benefits of a more efficient locational siting incentive could justify the complexity of an intrazonal Use of System charge, but only in relatively limited circumstances. In our view, the threshold should be that:

• the charge addresses a material residual siting problem that is not already captured through the wider RNP framework;
• delivers incremental consumer benefit over and above existing siting levers; and
• remains proportionate, transparent, and predictable in practice.

Where those conditions are not met, the case for an intrazonal Use of System charge is likely to be weak.

From a consumer perspective, the potential benefit of an intrazonal Use of System charge is that it could improve siting decisions where a purely zonal signal is too coarse to reflect meaningful differences between connection points within the same zone. If that leads projects to locate in ways that make better use of existing or planned network capability – and thereby reduces avoidable reinforcement or operational costs – the resulting consumer benefit could be material.

Consumer Scotland does not, however, consider that this will always justify the additional complexity of a new intrazonal Use of System charge. The CfI consistently frames charging reform as a balance between more accurate and cost-reflective signals and the need for stable, predictable, and transparent charging. In our view, an ongoing intrazonal charge would only be justified where it captures within-zone differences that are not already reflected sufficiently through connection-led mechanisms, and where the resulting signal is likely to improve siting decisions in a way that reduces total system costs. Where the relevant within-zone issue is highly site-specific or closely related to the works needed to connect a project, Consumer Scotland would therefore expect deeper connection charges or other connection-led mechanisms to be the more proportionate response. In contrast, an intrazonal Use of System charge seems more likely to be justified where the relevant difference relates to the broader relative value of connection points within a zone, rather than to the cost of dedicated local works alone.

Q24. Which, if any, of the charging reform options discussed in Chapter 3 could be suitable to provide an intrazonal charge, and why?

In the limited circumstances where an intrazonal Use of System charge would deliver additional consumer benefit, in our view it is unlikely to be delivered most effectively by simply replicating one of the interzonal options in full at a more granular level. The question is therefore less about which option can be transplanted most directly into an intrazonal setting, and more about which elements of those options can be used proportionately to address residual within-zone inefficiencies.

On that basis, the options that appear most appropriate for an intrazonal charge are those that could be adapted to reflect differences in local network value or cost within a zone without introducing unnecessary complexity. There may therefore be merit in drawing on the logic of Option B, insofar as a network utilisation-based approach could – in principle – reflect differences in the use of local or planned network capacity within a zone. There may also be a limited role for an approach analogous to Option D, where a simplified metric is used as a targeted overlay to the core interzonal charge to refine the locational signal, in cases where there is a clearly identified within-zone issue that is not reflected sufficiently through connection-led mechanisms.

We see less merit in the use of Option A at an intrazonal level, given the more limited ability of a modified transport model to reflect spare capacity and local network conditions. Equally, while the wider logic of Option C may be relevant where within-zone differences reflect broader system and constraints impacts, the intrazonal application of a full system-and-constraints methodology may prove disproportionate. We would be cautious about adopting an elaborate intrazonal methodology unless Ofgem can demonstrate that the resulting signal would deliver clear additional consumer benefit over and above deeper connection charges, local circuit cost recovery, and the wider framework of strategic planning and enduring reforms to the connections regime.

On that basis, local capacity auctions analogous to Option E seem least appropriate to the provision of an intrazonal charge. As set out in the CfI, the main concerns with auction-based approaches relate to liquidity, predictability, and their complex interaction with other allocation mechanisms. In our view, those concerns are unlikely to be any less difficult to resolve at intrazonal level, particularly given that participation may be even thinner and the resulting outcomes even more weakly informative than could already be the case at the level of the relevant SSEP zone.

Q25. What is the appropriate balance between connection charges and ongoing use of system charges in achieving efficient investment and siting decisions within SSEP zones?

In our view, the appropriate balance between connection charges and ongoing Use of System charges within SSEP zones will depend on the nature of the within-zone issue that the charging framework is seeking to address. Where the relevant cost difference is clearly site-specific and closely linked to the assets or works needed to connect a project at a particular point, Consumer Scotland considers that there is a strong case for that signal to be delivered primarily through the connection charge. In contrast, where the issue is reflective of the broader relative value of different connection points within a zone, and is not already reflected sufficiently through connection-led mechanisms, the case for some form of intrazonal Use of System signal appears stronger. From a consumer perspective, the main consideration is that the combination of levers should improve siting decisions in a way that reduces total system costs, while remaining transparent, proportionate, and predictable.

The CfI consistently frames charging reform in terms of balancing more accurate signals against the need for investor confidence and deliverability. In our view, that points away from a framework in which connection charges, local circuit cost recovery, and ongoing Use of System signals can all overlap, and towards a clear allocation of functions between them.

Ofgem’s wider charging framework already distinguishes between “Wider” charges for the meshed network and “Local” charges for the assets connecting projects to it. An approach in which connection charges do much of the work where intrazonal differences are localised, project-specific, and connection-led appears consistent with this approach. It is also closely aligned with cost causation, and may provide a clearer and more actionable signal at the point at which projects are making siting and investment decisions than would be the case if these costs were recovered through a more diffuse ongoing charge. In contrast, where within-zone inefficiencies arise because different connection points within the same zone have materially different wider implications, an ongoing Use of System charge may have a role in refining the broader locational signal, provided that it delivers clear additional consumer benefit and does not simply duplicate what is already being signalled through the connections process. In our view, the balance between these approaches should remain coherent with the wider framework of strategic planning; enduring reforms to the connections regime; and, where appropriate, the wider use of non-firm connection agreements. As such, we do not consider that connection charges and ongoing Use of System charges should be expected to carry the full burden of managing within-zone siting on their own.

Q26. How can charges be applied to improve the long-term stability and predictability of transmission charges, while ensuring charges appropriately reflect underlying system costs and a fair risk allocation for consumers? Please include views on:

Whether charges should be fixed at the point of FID, and if so, for how long, including the opportunities and risks of charge fixing.

If charges were fixed at point of investment, how frequently charges for new assets looking to connect should be recalculated, and what principles should guide the appropriate update cycle (for example, alignment with periodic plans such as the SSEP).

How far in advance of commissioning charges should be known to developers, and how this should balance investment certainty against the need for charges to adapt to evolving system needs.

Consumer Scotland considers that reform should aim to make transmission charges more stable, more predictable, and more transparent, but not so fixed that they cease to reflect the underlying purpose of locational charging. In practice, this means that development should continue to bear an appropriate degree of locational risk, provided that risk is transparent, intelligible, and bounded closely enough to support efficient siting decisions.

One of the weaknesses of the current framework is that charges can be materially influenced by the later siting or operational decisions of other projects. From a consumer perspective, the main concern is not the resulting volatility of Use of System charges, but that this volatility is difficult for investors to anticipate or respond to in practice. In our view, a future regime should therefore seek to move away from that form of uncertainty and towards a signal that is more closely aligned with strategic planning, the future planned network, and broader assumptions that investors can reasonably observe at the point key decisions are made.

On this basis, Consumer Scotland therefore sees merit in some form of charge stabilisation around the FID, particularly where the locational component of the charge would otherwise remain materially exposed to later entrant behaviour or to assumptions that are not not reasonably foreseeable at the point that key investment decisions are made. However, while a fully fixed charge may reduce financing risk, it may also weaken the locational signal and transfer excessive risk onto consumers if charges become detached from evolving system conditions. In our view, the case is therefore stronger for a framework that provides projects with a sufficiently stable charging basis to support efficient investment, while retaining some ability for the regime as a whole to adapt over time. The appropriate balance is therefore unlikely to be between full fixing and no fixing, but between different degrees of stability and between different update frequencies.

On that basis, Consumer Scotland would expect the update regime to provide projects with a clear planning baseline and a reasonably stable charging expectation over the relevant investment period, while allowing new entrants to face recalculated charges at regular and transparent intervals. In our view, the principles guiding that cycle should include:

• alignment with the strategic planning framework;
• clarity on the assumptions used in the charging model; and
• avoidance of a regime in which earlier projects remain materially exposed to later siting decisions that were not reasonably foreseeable at the point of FID.

In practice, we therefore consider there is a case for recalculation to be linked more closely to periodic strategic planning cycles and other clearly signalled governance events, rather than to annual movements driven by later entrant behaviour or short-run model changes.

Consumer Scotland also considers that developers should have a sufficiently clear view of likely charges early enough for those charges to inform siting, route-to-market, and investment decisions in a meaningful way. We do not consider that developers need – or should expect to be provided with – perfect foresight, but if the charge only becomes sufficiently firm very late in the development cycle, the signal it provides is unlikely to shape decisions efficiently and may instead operate mainly as an additional source of financing or delivery risk. In our view, an appropriate framework is therefore one in which developers receive early visibility of the methodology, the planning baseline, and the plausible range of outcomes, followed by a firmer and more stable charge as projects approach key commitment points. That seems more likely to preserve an appropriate degree of locational risk than either a regime of near-complete uncertainty or one of perfect foresight, and meet the objective that any uncertainty that remains manifests as risk that investors can understand and efficiently price.

Q27. What factors should be considered when determining the appropriate representation of the network from which to derive charges?

Consumer Scotland does not take a detailed view on the technical representation of the network from which charges should be derived. However, we consider that the appropriate representation of the network should be one that is strategically aligned, forward-looking, transparent, and proportionate. In practice, that points towards a charging framework derived from the future planned network – informed by the SSEP and the wider RNP framework – but designed in a way that remains predictable enough to support efficient investment and does not simply reallocate risk without improving consumer outcomes.

Q28. How can locational charging best reflect technology-specific differences?

Consumer Scotland considers that locational charging should be technology-agnostic where this remains a reasonable approximation of underlying system impacts. While a more differentiated model may improve cost reflectivity in principle, it also risks introducing greater complexity without a commensurate improvement in siting or system efficiency. In our view, the relevant issue is therefore not technology labels in themselves, but the extent to which different technologies are expected to use the network differently over time. That includes, for example, when a technology is likely to export or import; how that behaviour interacts with demand, other generation, and local or wider constraints; and whether it is likely to increase or reduce the need for reinforcement or other system costs. Where those differences are material, the charging methodology should seek to reflect them.

Consumer Scotland therefore sees merit in technology-specific differentiation where it is grounded in modelled system impacts. For example, for intermittent generation, that may mean recognising that output is weather-dependent and often tightly correlated with similar assets in the same broad geography, whereas for dispatchable generation, the relevant issue may be the extent to which the asset is expected to contribute at times of peak system stress or at other times that drive underlying network costs; for storage, charges should reflect its dual role as both a demand sink and an exporting asset, and the extent to which charging and discharging behaviour creates or relieves pressure on the system at different times. In all three cases, the objective is the same: to reflect the different long-run costs or benefits that arise from those operating patterns, rather than to create separate tariff classes for their own sake.

Consumer Scotland also considers that the move towards strategic planning should improve the basis on which such differences are reflected. The wider RNP framework is intended to align charging reform with the SSEP, the future planned network, and a reformed connections regime. In our view, that should allow technology-specific differences to be reflected more coherently through a published planning baseline, rather than through a more reactive framework that is largely driven by later entrant behaviour or assumptions that are difficult for investors to anticipate. That appears likely to improve predictability even where different technologies continue to face different locational outcomes.

Q29. In areas where adding generation reduces the need for additional transmission infrastructure, should network charge credits continue to apply under a reformed framework? Is it appropriate these charges are paid for by final demand?

Where a project’s location genuinely reduces the need for additional network investment, alleviates constraints, or makes better use of planned network capacity, Consumer Scotland considers that there is a reasonable case for the charging regime to recognise that system value. Whether that recognition is expressed as a negative charge / credit or in some other way is, in economic terms, secondary to whether the overall signal is necessary, proportionate, and coherent with the full suite of siting and investment levers.

On that basis, Consumer Scotland would not oppose the continuation of network charge credits in principle under a reformed charging framework. However, we do consider that any such credit would need to be justified by clear underlying system benefit, rather than by simple continuity with the current regime. In our view, the relevant test is whether the signal improves siting decisions in a way that is likely to reduce total system costs for consumers, rather than primarily redistributing value between generators, suppliers, and demand.

We also consider that a reformed framework should reflect the wider move towards strategic planning and the future planned network. There is an important distinction between the strategic baseline for the future system and costs that arise because projects locate outside or materially beyond that baseline. In this context, the case for a credit or equivalent negative charge appears strongest where it reflects genuine long-run system value within the reformed framework, rather than simply preserving a historical feature of current tariff design.

On the specific question of whether such credits are appropriately paid for by final demand, Consumer Scotland considers this to be an issue that is best understood as one of cost recovery and transparency, rather than whether consumers bear the cost at all; in practice, the costs and benefits of network charging arrangements are always likely to flow through to consumers through one bill component or another. For us, the more relevant question is therefore whether the way in which these costs are recovered preserves the value of the locational signal, and allocates those costs in a way that is fair; the current framework already recovers the bulk of TNUoS costs from demand customers, with the locational element for demand comparatively small relative to the overall charge.

Against that background, if a negative charge or equivalent incentive is retained because it reflects a genuine reduction in long-run system costs, Consumer Scotland considers that there is a case for its cost to be socialised more broadly. However, Ofgem should consider whether the way in which those costs are recovered remains consistent with the principles of transparency and a fair allocation of risk, and the objective of preserving a meaningful signal for efficient siting. In our view, the case for recovery through final demand is stronger where the benefit being recognised is genuinely system-wide, and weaker where the arrangement would mainly reallocate value without a clear corresponding consumer benefit.

Q30. If network charge credits were to continue in a reformed framework, how should they be used to provide an effective and proportionate locational signal?

If network charge credits were to continue, Consumer Scotland considers that they should be used only where they reflect a clear and material reduction in long-run network or system costs arising from the location of the project. On that basis, we would expect any continuing credit to be grounded in the strategic planning framework; the future planned network; and the wider distinction between the strategic baseline for the future system and costs that arise because projects locate outside or materially beyond that baseline. In our view, the case for a credit is strongest where a project’s location genuinely reduces the need for additional network investment, makes better use of planned capacity, or otherwise lowers wider system costs within that framework.

Consumer Scotland also considers that any continuing credit should be transparent and predictable enough to influence investment decisions in practice. The CfI repeatedly emphasises the importance of stable, predictable, and transparent charging, and these considerations should apply equally to negative locational signals. In our view, a credit is unlikely to provide an effective siting incentive if it is highly volatile, difficult to forecast, or materially exposed to later entrant behaviour or to assumptions that are not reasonably foreseeable at the point that key investment decisions are made.

We also consider that any negative locational signal should be no stronger than is necessary to reflect the relevant system value and to support efficient siting, since a credit set too broadly or without a clear link to underlying network and system impacts may risk becoming less a locational signal and more a transfer of value between market participants. On that basis, we would not support technology-specific treatment based on the technology label itself, since the relevant issue is whether different technologies are expected to impose materially different long-run network or system costs because of how and when they interact with demand, other generation, and constraints.

Q31. Should flexible connection offers be used to manage the possibility of connections in advance of (or in addition to) planned capacity as a backstop complementary measure?

The CfI identifies non-firm connections as a possible backstop where connection offers are made in excess of the core SSEP pathway or where planned network build is delayed. The RNP Delivery Plan also indicates that government is actively considering whether CCTs should be set above the core SSEP assumptions, to mitigate against project attrition and to preserve competition in government’s investment support scheme auctions.[15]

Consumer Scotland considers that there is merit in exploring the wider use of non-firm connections, particularly where they would allow projects to proceed ahead of or materially above the strategic baseline without exposing consumers to inefficient network or constraint costs. In our view, this means the relevant distinction is not simply between projects that are ‘within’ or ‘outside’ the SSEP; the emerging framework appears more likely to involve a core strategic pathway, with some degree of managed tolerance above that pathway to mitigate against project attrition and delivery uncertainty. In this context, non-firm connection offers may have a useful role in managing the system impacts of projects that are allowed to proceed within that tolerance, as well as providing a safeguard where development moves materially beyond it.

From a consumer perspective, the attraction of non-firm connection offers is that they may allow economically useful projects to connect without treating every additional project as if it were entitled to firm access on fully socialised terms. In particular, a framework that leaves no room for projects beyond the strategic baseline risks fixing the cost base of the system too early and reducing the scope for new entry to compete away higher-cost outcomes. In our view, if a project brought forward as a speculative commercial bet is prepared to accept a connection that is curtailed or otherwise limited when the network is constrained, that would provide a more proportionate way of accommodating additional capacity than either refusing connection entirely or allowing firm connection in a way that brings forward avoidable system costs. In a strategically planned system, we consider that this would represent a more appropriate balance of risk between producers and consumers, while preserving competition and delivery optionality.

We are however more cautious about the use of non-firm connection offers where network build is delayed, and would not support their use for this purpose if the principle effect was a non-actionable transfer of delivery risk to developers that they are not well placed to manage. In our view, this risk is likely to be greatest where delays to planned network build result in a deterioration in the terms of a connection offer after FID. In those circumstances, the issue is not that a project has accepted a non-firm connection in full knowledge of the associated risk, but that the project would face a worsening of connection terms at a point when it has already committed capital and can no longer respond meaningfully through siting or design. Where delayed network delivery crystallises as a post-FID reduction in firmness or increase in curtailment risk, the resulting effect would be less a useful locational signal and more a non-actionable transfer of delivery risk to developers. In our view, this would be likely to weaken investor confidence, raise project financing costs, and ultimately increase costs for consumers.

Q32. If projects are, under limited circumstances, permitted to connect above the planned capacity in a zone, to what extent should deeper connection charges be used to recover any additional network reinforcement costs they may trigger?

The RNP Delivery Plan indicates that some degree of additional capacity above the core SSEP pathway may be accommodated to mitigate against project attrition and preserve competition in government’s investment support scheme auctions.[16] In our view, a distinction therefore needs to be drawn between:

• projects that sit above the strategic baseline but still within a managed tolerance / delivery envelope that government may deliberately facilitate to deliver against wider policy objectives
• projects that sit beyond that managed tolerance

On the logic of the RNP Delivery Plan, these are not the same category of project, and in our view it would therefore not be appropriate to treat them in an identical manner for charging purposes; if government is prepared to tolerate a level of overcapacity above the strategic baseline to maintain bidder depth and avoid under-delivery through project attrition, then a charging regime that treats all projects above the core SSEP pathway as ‘outside plan’ could work against that policy choice and erode overall consumer welfare.

In that context, projects that are within any managed tolerance above the core SSEP pathway are likely best considered part of the managed RNP delivery strategy. In our view, this suggests that such projects should not automatically be treated in the same way as projects that are materially beyond the managed tolerance for the purposes of charging. In contrast, the case for deeper connection charges is stronger where a project is beyond the managed tolerance and is asking the system to accommodate capacity that government has not decided to accommodate as part of its delivery strategy. This is particularly the case where such ‘beyond tolerance’ projects seek a greater degree of firmness in their connection than the system would otherwise efficiently provide.

Consumer Scotland does not, however, consider that a deeper connection charge would necessarily be sufficient on its own to set an appropriate balance of risk between producers and consumers. Even where a project contributes to the cost of reinforcement needed to secure firmer access, there may still be ongoing locational and system costs associated with connecting a project beyond the managed tolerance in the developer’s chosen location. In our view, the wider charging framework would therefore still need to ensure that the project faces an appropriate ongoing locational signal through Use of System charges.

From a consumer perspective, the central consideration is that the allocation of costs should preserve the possibility of additional entry and competition where this is beneficial, while ensuring that projects connecting above planned capacity face an appropriate exposure to the incremental costs they impose on the system. In our view, deeper connection charges can support that objective where they are targeted, proportionate, and transparent, and where they distinguish between costs that are genuinely caused by the additional connection and costs that are more appropriately treated as part of the wider network baseline or of broader future benefit.

Q33. Under what circumstances do you see a need for introducing LAT arrangements? Do you agree with our rationale for the potential introduction of such arrangements?

The CfI sets out that implementing potentially significant reforms to network charging could introduce considerable uncertainty for organisations making investment decisions ahead of implementation, and those operating existing assets. Given the potential scale of the reforms, Ofgem considers that it may be in consumers’ wider interests to introduce bespoke arrangements for such LAT assets to manage the change from the current charging arrangements, so that consumers are not worse off due to costs that arise due to investor uncertainty. Ofgem defines legacy assets as existing assets that are already operating and that are liable for TNUoS wider locational charges, whereas transitional assets are defined as investments for which decisions will be taken before any charging reforms are fully implemented.

The CfI sets out three high level design choices for bespoke arrangements for LAT assets, in which the core trade-off is the ease of implementation versus the degree of change to the current arrangements:

(i)      Retaining a parallel charging regime based on the existing methodology which updates annually;

(ii)    Phasing implementation from the existing methodology to the chosen, reformed approach to charging over a set period; or

(iii)  Creating a fixed charging regime based on the existing methodology only for assets within the scope of LAT arrangements, where charges would not be recalculated once set.

Consumer Scotland recognises that there are circumstances in which LAT arrangements may be justified. While we therefore agree in principle with Ofgem’s rationale for exploring LAT arrangements, we do not consider that the case for LAT should be built around preserving historic charging outcomes. In our view, LAT arrangements should be justified by reference to consumer value and orderly transition, rather than by a general presumption that incumbent or well-advanced projects should be shielded from any change in charging exposure.

From a consumer perspective, the case for LAT appears strongest where a project has limited practical ability to respond to the new signal. For assets that are already built, or for projects that have reached their FID and cannot meaningfully re-site, a material change in locational charging is unlikely to operate as a useful siting signal. In those circumstances, the main effect of abrupt reform is likely to be to create a non-actionable transfer of risk or value, rather than to improve locational efficiency.

That said, Consumer Scotland would not support LAT arrangements that are broader or longer-lasting than necessary. If arrangements are too generous or too extensive, there is a risk that they dilute the new locational signal, preserve legacy positions longer than is justified, or slow the transition to the reformed regime. In our view, the appropriate test is therefore whether LAT arrangements are targeted and proportionate, and whether they are likely to reduce consumer detriment from transition more than they weaken the benefits of reform.

Q34. Can you provide details and/or information on how investment decisions have been made to date and what factors or assumptions regarding TNUoS charging were taken into account?

Consumer Scotland does not take a view on this question.

Q35. Do you agree with these principles for LAT arrangements? Are there any which we are missing?

The CfI sets out five policy principles for LAT arrangements that seek to ensure that the benefit of greater certainty for generators is balanced against consumer bill impacts. These are:

Predictability: any LAT arrangements should support a stable and predictable investment environment for assets affected by them – ensuring an appropriate risk allocation between consumers and asset owners.

Fairness: the arrangements should not leave consumers worse off overall. The CfI notes that this will necessitate balancing the risk of increased financing risk premia and the risk of increases to demand charges. It also notes that for transitional assets, an appropriate level of locational investment signal should be maintained.

Investability: any arrangements should mitigate the risk of an investment hiatus by reducing the incentive to delay investment until charging reforms are implemented.

Simplicity: arrangements should be simple and clearly communicated to the sector as early as practicable – potentially implementing them ahead of the full suite of charging reforms.

Stability: arrangements should follow a similar charging structure to the current one – a £/kW charge that does not affect operational behaviour.

Consumer Scotland considers that these are the right starting principles. In our view, however, they are best viewed through a wider consumer lens, namely that LAT arrangements should be used where they support an orderly transition to the new charging regime and reduce the risk of avoidable costs to consumers, and not simply as a vehicle to preserve historic charging outcomes. We also consider that LAT arrangements should be proportionate, targeted, and administratively clear. As such, LAT arrangements should be no broader, more generous, or long-lasting than is necessary to manage the transition in a way that benefits consumers, and their interaction with and dependency on factors such as FID timing, route to market, or project status should be both justified and clearly understood.

Q36. Do you believe determining the scope of LAT arrangements solely based on a FID cut-off date is appropriate, or should we narrow their scope based on route to market or other differentiators?

Consumer Scotland does not take a view on this question.

Q37. What would be the best way, in your view, for the Authority to collect and assess evidence of FID for the purposes of determining eligibility for LAT arrangements? Would it be more appropriate to use Milestones 7 and/or 8 of the connections process as the method of determining eligibility?

Consumer Scotland does not take a view on this question.

Q38. Should we consider differentiating between generators that are currently receiving TNUoS credits and those liable for paying TNUoS charges in determining the scope of any LAT arrangements?

The current charging framework already distinguishes between generators that face positive wider TNUoS charges and those that face very low or negative charges. Consumer Scotland recognises that the transition to a reformed charging regime may therefore affect these two groups differently. We do not, however, consider that current receipt of a TNUoS credit should – of itself – determine whether a project falls within the scope of LAT arrangements. In our view, the stronger test is whether reform would otherwise create a material and non-actionable charging shock for assets that cannot reasonably respond to the new signal, and whether the absence of LAT arrangements would be likely to increase costs for consumers through a disorderly transition, reduced investor confidence, or inefficient risk transfer.

Consumer Scotland would therefore expect any distinction between credit-receiving and charge-paying generators to be strongly justified by reference to the purpose of LAT arrangements. In our view, that purpose is to support an orderly and consumer-focused transition to the new regime, not to preserve the existing distribution of winners and losers under the current charging model. If Ofgem concludes that projects currently receiving credits warrant different treatment, we would therefore expect that conclusion to be justified in terms of fairness, predictability, and value for consumers, rather than by the fact of current credit status alone.

Q39. Which design – parallel running, phased implementation or a fixed charging regime – could best achieve a balance of the aims for LAT arrangements?

Consumer Scotland considers that the design of any LAT arrangements should be judged by whether they support an orderly transition to the reformed charging regime at the lowest overall cost to consumers, while maintaining sufficient predictability and investor confidence for projects that cannot reasonably respond to the new signal.

The CfI frames the three design options around the trade-off between ease of implementation and the degree of change from the current regime, and states that they should be assessed against their impact on charges levied on consumers, their ability to improve investor certainty, and their ease of implementation and administration. On that basis, we consider that a phased implementation is likely – in principle – to offer the best overall balance of those aims.

Q40. If fixing of charges for legacy generators was deemed appropriate, which of the approaches described could achieve a balance of aims for the LAT arrangements? Are there other approaches we should consider for fixing?

The CfI sets out three possible methods for fixing charges for assets within scope of LAT arrangements:

(i)     Fixing the charge at the TNUoS rates of the year prior to implementation of the new regime;

(ii)   Setting charges based on a forecast; or

(iii)  Fixing charges by reference to the year in which the FID was made.

Consumer Scotland considers that, if fixing of charges for legacy generators were deemed appropriate, it should be used only where it is needed to support an orderly transition to the new regime in a way that benefits consumers.

Against that background, Consumer Scotland sees greater merit in approaches to fixing that are linked to a clear and objective reference point than those that rely on subjective judgement or assumptions. As such, fixing by reference to a clearly identified point in time – whether the year prior to implementation or, where appropriate, the year of FID – appears more consistent with the broader principles of predictability, fairness, and ease of implementation than an approach based on forecasts. We note however that the appropriate choice may differ depending on whether the assets in scope are legacy assets or transitional assets, since the latter may have made investment decisions on the basis of more recent future charging expectations and may therefore be better prepared for transition exposure.

That said, Consumer Scotland would not support fixing arrangements that are broader or longer-lasting than necessary. As set out elsewhere in this response, the purpose of LAT should be to support a consumer-focused and orderly transition, not to dilute the new locational signal more than is justified. If fixing is applied too broadly or for too long, there is a risk that it preserves historic positions beyond what is needed to manage transition risk. In our view, any fixing arrangements should therefore be time-bound and proportionate, and justified by the degree of non-actionable transition exposure rather than by current tariff position.