There are 14 licensed District Network Operators (DNOs), owned by six different groups, that manage the UK’s distribution networks.
Capacity within that network and the time it takes to get new projects connected is a huge concern.
Independent District Network Operators were first licensed in 2004 to increase competition and provide an alternative route for creating connections between the existing grid and new developments.
There are currently 13 licensed IDNOs, which, according to the Independent Networks Association, serve around 1.5 million customers in Great Britain and adopt 70 to 80% of new connections.
We spoke to one of them to find out more about how IDNOs work, their advantages for businesses, and their role in helping to overcome the challenges posed by the grid.
Here’s our interview with Suzanna Lashford, Head of Business Development, at Vattenfall.
What is your role is at Vattenfall?
I’ve been at Vattenfall for over six years now, having joined just as the IDNO bit of the business was born. My background before that is in renewables, working for a solar installer business. Before that I was straight out of university so very much a child of the renewable generation, which was always a great passion of mine.
One of the reasons I moved to the IDNO space was because I could see how important grid connections were going to be for the whole net zero journey.
My role is Head of Business Development and I’ve been growing a team of business developers in our IDNO business, which is going from strength to strength.
The market itself is growing with more companies coming into the space. I think we’re doing a great job in supporting very specific customer types who are quite pivotal for societal change, looking at how we can help get them onto the grid quicker and more easily, because it is quite a cumbersome process.
We also spend a lot of time in the generation sector, supporting solar battery and increasingly wind, because thankfully the government is being a little bit more focused on onshore wind, which is great.
Tell us a bit about Vattenfall
Vattenfall was one of the original network operators in Sweden and now owns and operates between a third and a half of the electrical distribution networks there. It’s a very wet nation – Vattenfall means waterfall in Swedish – with lots of inlets and rivers, so hydro has been a big focus and the business evolved from building and connecting the hydro. We now focus on the core areas of generation, distribution and district heating.
We work on both large and small projects and are blessed with the freedom to approach the markets we see fit to interact with, and the backing of a big state-owned company that wants to invest in this type of infrastructure.
Can you give us an overview of the IDNO market?
The IDNO market was born from Ofgem wanting to create more competition in the network space. Getting connected was becoming very expensive, so Ofgem told the DNOs to separate the offer they were giving to customers by allowing other companies to tender for extensions to their networks.
IDNOs can only adopt new connections. They can’t take on connections already owned by the DNOs.
It’s now a huge market in the UK. While residential connections account for a good proportion of the new connections in the UK, commercial connections outweigh those numbers. Because they’re larger, the physical investment is greater.
I think we were the first IDNO to start looking at connecting generation assets. We did our first connection for a solar farm in 2021 and we’ve been heavily focused on that sector since.
What are the benefits of working with an IDNO?
There’s a number of facets to the IDNO offer, but it roughly comes under two or three key areas where we improve the service for our customers.
Firstly we provide an asset payment. This is not something the DNOs do. Ordinarily, the DNO gives you an offer – they tell you it’s going to cost a certain amount to get your grid connection. You pay, it gets built, the DNO owns it and then you pay to use it as well.
With our offering, we give some money back to the customer at the point of connection, as well as some of the future revenues that we make from those connections.
The idea is that this asset payment can be tendered out into the market with all the IDNOs so the customer gets the best offer for their network. We spend a lot of time putting these asset offers into the market.
That asset payment can be quite sizeable for big projects, in the millions, which can make or break a project’s viability.
We can also be a lot more flexible in how we design things. We still work to the same standards but can create a better offer that reduces the initial cost of building the connection.
We can also streamline the connection process in various ways, such as reserving capacity for customers upfront. So for projects that require quite a long development time, we can save customers money by reserving capacity for them over time as part of a ramping agreement.
There’s also a number of things that we can do for customers whose developments change over time. For example, if a solar farm needs to change a boundary for any reason. A DNO would require a new application in this scenario. It’s pretty restrictive, particularly when a lot of solar farm developers have been waiting a long time to get their grid connections in.
We talk to a lot of developers and whenever you bring up grid, it’s a frustration. We take a very tailored approach to customer service which means we can generally get things done quicker. Our goal is that the customer has a more enjoyable connections process.
We do have to go through a bit of a journey explaining the offer we have, because often when we show customers these asset payments, they think there must be a catch.
So the IDNOs can help solve the grid capacity issues?
Some developers are getting stuck in 15-year backlogs when they’re going through the DNOs because there is not enough capacity available. And of course that hinders their projects and the overall net zero transformation. So IDNOs essentially offer an alternative route, whether that be a cheaper or quicker connection, as well as helping customers through what can be a daunting process.
That also allows for more flexibility in terms of pricing too. You’re not just given one set price at the beginning. Instead, the price you’re offered is tailored around your specific business needs.
What’s your offer for businesses?
At the end of last year we developed our grid consultancy. Historically we would step in once a developer has applied to the grid already or has an idea of where there might be grid capacity, but as this is becoming harder to find, we started to support that front end work, finding out where there is capacity and making the grid applications.
We have developed a special database which provides a live snapshot of what is available.
Because we’re another regulated entity, we can also have more of an open discussion with the DNO about the type of grid offer. While we can’t create capacity, we do look at alternative ways to get capacity quicker.
What’s the medium-term plan for this area of the business in the UK?
The goal is to not to be the biggest IDNO. We want to be very focused on some key industries, so large industry connections, heavy industry who are all looking to decarbonise. We also do a lot in the general commercial space and our goal is just to keep growing that. We do some residential and we have our district heating business and when they get projects, they need electrical connections. That’s on a city level. So Edinburgh and Bristol, for example.
I think some other key focuses that will grow will be the hydrogen space. I’m doing quite a lot of work for that because I can see the government making moves to really boost that, both on the transport side and the actual transportation of hydrogen in our gas network. There’s a general feeling we might actually get to see hydrogen being pumped around our gas network. I’m on the fence about that one, but all this hydrogen needs to be made and it’s going to take vast amounts of electricity connections to do that.
How do you feel about the political landscape and the conditions for net zero following the election of the new government?
I feel buoyed. The people that are in place have a good track record. I’ve met Ed Miliband a few times and was always quite impressed. He knows what he’s doing. They’ve set up GB Energy and need to crack on with that. They’ve changed the planning system to support onshore wind and that’s been a really positive move.
I think governments have a legacy of under investment in key bits of the market that are needed to drive net zero, such as core skills and manufacturing for key equipment. For example, one of the big issues we have for getting grid connections is the supply of equipment. There’s just not enough of it around, so the costs have gone up. I really hope the government might tackle some of those.
I’d also like to see whether they can boost basic things like energy efficiency and schemes for rooftop solar and more support mechanisms to offer a complete package for homeowners which includes batteries.
Obviously they have implemented some quick wins, but it will be interesting to see what develops.
Image credit: Vattenfall.