The value of the connections market is in excess of £500 million a year with hundreds of thousands of connections completed each year. The installation of new connections assets helps to minimise natural monopolies through the creation of an element of competition.
Independent Connection Providers (ICPs) and licensed Independent Distribution Network Operators (IDNOs) can compete with Distribution Network Operators (DNOs) to complete some connection activities. Given the significant volume and value of this market, we would expect that effective competition could develop with the right conditions.
The competition test
Following its introduction in 2000, the development of competition for electricity connections had been slow compared to gas. Because of this, we developed measures in the Distribution Price Control Review 5 to improve the conditions for competition. Collectively these measures are referred to as the ‘competition test process’.
While competition had developed in some sections of the market, the results of the test showed that it had not taken hold in all areas.
Our review of the market
In June 2014 we opened our review of the market for new connections to the electricity distribution network in response to continued concerns about whether competition in this market is effective.
Following a call for information, we published an update in October 2014 explaining that we had found issues in the market that could limit competition, a number of which relate to the DNOs’ role in the connections process. As such, we asked DNOs to explain how they would be addressing the issues identified.
Most recently in January 2015, we published a consultation outlining our proposed solutions to the issues identified and the best way to implement them. We want to ensure DNOs place an enduring focus on adopting, harmonising and maintaining best practice behaviour in the connections market.
We intend to do this by introducing a new licence condition to require DNOs to reduce the extent to which competitors depend on them for essential services. Where the DNO is required to provide these services, it will need to do so on same basis to both its competitors and own connections business.
DNOs will collectively need to harmonise their arrangements for competition. This will be achieved through an enforceable Code of Practice (CoP) with which DNOs will have to comply.