Locational charges and regulatory siting levers under reformed national pricing

Call for Input Locational Charges and Regulatory Siting Levers under Reformed National Pricing Publication date: 26 March 2026 Response deadline: 26 May 2026 Contact: Amir Alikhanzadeh Team: Strategic Investment Levers Design Email: RNPchargingreform@ofgem.gov.uk This Call for Input explores potential options for how a locational charge could be designed to support the delivery of the Reformed National Pricing (RNP) programme, ranging from incremental to substantial changes to the current transmission network charging regime. It also sets out initial thinking on legacy and transitional arrangements for projects in advanced stages of development. We are seeking feedback from industry and stakeholders to help shape the development of a reformed locational charging regime. We will continue to work closely with government as it progresses thinking on wider RNP policy issues to ensure regulatory alignment with other strategic policy goals. Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 2 © Crown copyright 2026 The text of this document may be reproduced (excluding logos) under and in accordance with the terms of the Open Government Licence. Without prejudice to the generality of the terms of the Open Government Licence, the material that is reproduced must be acknowledged as Crown copyright and the document title of this document must be specified in that acknowledgement. This publication is available at www.ofgem.gov.uk. Any enquiries regarding the use and re-use of this information resource should be sent to psi@nationalarchives.gsi.gov.uk. Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 3 Contents Executive summary ............................................................................................. 5 1. Introduction .................................................................................................. 12 Reformed National Pricing ...................................................................................... 12 Open letter on reforms to network charging ............................................................. 12 Purpose and scope of this Call for Input .................................................................. 13 Links to other workstreams ..................................................................................... 14 Timeline for locational charging reforms .................................................................. 14 Related publications .............................................................................................. 15 Call for Input stages ............................................................................................... 15 How to respond ..................................................................................................... 15 Your response, data, and confidentiality .................................................................. 16 How to track the progress of a Call for Input ............................................................. 16 2. The case for change for regulatory siting levers .............................................. 17 The current regulatory siting levers .......................................................................... 17 Case for change ..................................................................................................... 19 Assessment criteria for locational charging reforms ................................................. 22 3. Options for interzonal locational charges ....................................................... 23 Potential options for interzonal locational charges ................................................... 23 Option A: Targeted changes to the current charging regime ....................................... 24 Option B: Network utilisation impact charge ............................................................ 25 Option C: System and constraints impact charge ..................................................... 28 Option D: Metric-based charge ............................................................................... 30 Option E: Plan-based auction pricing ...................................................................... 31 4. Provisional design considerations for locational charges for demand and storage ............................................................................................................. 34 Provisional considerations for final demand ............................................................ 34 Provisional considerations for storage ..................................................................... 37 5. Approaches for intrazonal locational charges ................................................. 42 Context ................................................................................................................. 42 Approaches ........................................................................................................... 43 6. Wider design considerations ......................................................................... 47 Key design choices on the trade-off between accuracy and predictability .................. 47 Technical design choices ....................................................................................... 49 Complementary regulatory levers to support RNP delivery ........................................ 52 7. Treatment of legacy and transitional assets ................................................... 55 Context ................................................................................................................. 55 The potential case for legacy and transitional arrangements ..................................... 56 Principles of prospective legacy and transitional arrangements ................................ 56 The scope and definition of prospective legacy and transitional arrangements ........... 57 Design considerations for legacy and transitional arrangements ............................... 59 Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 4 Options for fixing charges for assets within scope of LAT arrangements ..................... 60 8. Next steps .................................................................................................... 62 Send us your feedback ...................................................................................... 63 Appendix 1 Call for Input questions .................................................................... 64 Appendix 2 Glossary .......................................................................................... 72 Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 5 Executive summary In July 2025, the government concluded the Review of Electricity Market Arrangements (REMA) and launched the Reformed National Pricing (RNP) programme.1 RNP aims to: • Deliver a more strategic and co-ordinated approach to the energy system; • Provide stronger signals for the efficient siting of new assets; and • Improve the overall operational efficiency of the system. A central part of this programme is the reform of locational charges for new assets, designed to guide investment towards Strategic Spatial Energy Plan (SSEP)-aligned areas while maintaining investor confidence through stable, predictable and transparent charging. This Call for Input (CfI) sets out Ofgem’s early thinking on how transmission network charges could be reformed to incentivise new investment to align with the SSEP. The purpose of this CfI is to engage stakeholders at an early stage, to understand potential risks, benefits, trade-offs and practical and technical considerations, and to identify areas requiring further analysis before any policy positions are developed further. Government has set out its intention for reforms to network charging signals to be delivered as soon as possible within this Parliament, and by 2029 at the latest. This is why we are commencing industry engagement on potential options for charging reform now. In addition, government will shortly publish its RNP Delivery Plan, which will set out the strategic approach and forward timetable for delivering reforms to support a more efficient, secure and cost‑effective electricity system. Scope and content This CfI explores how transmission-level locational charges and related regulatory levers could be reformed to better incentivise investment in locations more aligned with long-term system needs and planned network capacity. It considers options for improving and strengthening locational charging signals across, and within, SSEP zones. It looks at how improved locational charges could help address the potential misalignment between generation development and network readiness, alongside other potential regulatory levers like the use of some form of flexible connection offers under limited circumstances. In addition, it provides some initial considerations for designing locational charges for demand and storage assets, recognising that their operational behaviour and responsiveness to signals may differ from those of generation assets. 1 Review of electricity market arrangements (REMA): Summer update 2025 – GOV.UK Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 6 Finally, the CfI highlights the need to consider appropriate arrangements for legacy and transitional assets. Existing assets and those making investment decisions ahead of RNP implementation may benefit from tailored transitional arrangements in order to support predictability, fairness and value for consumers, and to maintain investor confidence when any new locational charging regime is introduced. Overview of interzonal locational charge options We present a broad set of potential options for the design of locational charges between SSEP zones (interzonal charges) for new assets. These range from incremental refinements to current arrangements through to more transformative approaches. The options also differ in the nature of the signals they provide. Some are designed to directly reflect underlying network costs, while others are structured to align more explicitly with the wider system impacts identified through the SSEP. Different options strike different balances between supporting wider system value (SSEP alignment), efficiency (including overall benefits for consumers), maintaining predictable and transparent signals for investors, preserving effective competition, and delivering reforms that are practical and deliverable within expected timelines and budgets. The charging options explored are: A. Targeted changes to the current charging regime This option would retain the existing Transmission Network Use of System (TNUoS) framework for calculating charges but introduces focused changes to improve predictability and try to support alignment with the SSEP. Changes could make charges less volatile and base them on the future, rather than current, network. While this could be simpler to implement, it limits how far charging can align with a strategic plan, accurately reflect spare network capacity and address limitations of the current transport model. B. Network utilisation impact charge This option retains the broad economic principles underpinning the current TNUoS charging approach (reflecting long-run network costs) but would use an alternative model reflecting spare network capacity. The model could also be based on forward‑looking assessments of reinforcement needs and planned network investment to encourage better alignment with the SSEP. Further work is needed, as this option may require enhanced long‑term modelling and clear governance around underlying inputs and assumptions. C. System and constraints impact charge Under this option, charges would reflect long‑term modelling linked to wider system planning outputs, incorporating expected network constraint patterns and future Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 7 network upgrades.2 This could strengthen spatial alignment with the SSEP while offering a more transparent link to planned system and network development. Further work is required to understand the extent to which it could build on the existing modelling framework used in the development of the SSEP. D. Metric‑based charge Metric‑based designs would set charges using simplified proxies based on SSEP alignment or constraints impact. These may be simpler to implement, but translating a simplified metric to a charge could introduce some subjectivity, and further work is needed to understand how this could be managed in practice. E. Plan‑based auction pricing Under this option, charges could be set in each SSEP zone by auctioning off SSEP‑aligned capacities of connections. This could provide transparent market‑based valuations of connection and could be linked to connection or Use of System charges. However, it would need to be integrated carefully with the connections and government auctions processes, and would raise considerations around timing, investor certainty and liquidity of auctions. Intrazonal charges We also consider whether charges should provide an intrazonal signal at the transmission level, guiding investment siting within the 19 SSEP land zones, and whether such a signal should come through connection charges or Use of System charges. 2 As set out by NESO in the SSEP and Centralised Strategic Network Plan (CSNP). Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 8 Figure 1. Overview of locational charging options A) Targeted changes to current charging regime Maintaining the current regime with targeted refinements to improve predictability E) Plan-based auction pricing Charges set by auctioning off SSEP-based capacity of connections by zone/technology B) Network utilisation impact charge New methodology based on network long-run marginal cost, better reflecting network utilisation C) System and constraints impact charge Charges reflecting wider system costs, including the long-run costs associated with structural constraints D) Metric-based charge Simplified charges based on metrics reflecting SSEP alignment or constraints impact Incremental change; capturing marginal network costs Transformative change; capturing wider system impacts Projects could be charged for a greater share of the cost of the works required for their connection A form of Use of System charge could incorporate the impact of siting decisions within SSEP zones Approaches for intrazonal locational charges (sending a locational investment signal within SSEP zones) Deeper connection charge Use of System charge Options for interzonal locational charges (sending a locational investment signal between SSEP zones) Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 9 Key design considerations Across all options, we explore cross‑cutting design considerations that influence both investor decisions and efficiency, and economic benefits for consumers. We consider the trade‑off between accurate and cost‑reflective signals via the charging regime and predictable and stable charges. More accurate charges could better reflect evolving system needs and should support more efficient siting decisions. However, they may at the same time introduce volatility, particularly if they change frequently or rely on assumptions that vary over time. Measures that enhance predictability such as reducing update frequency or fixing charges around Final Investment Decision (FID) could help support efficient investment by giving investors clearer and more stable locational signals. This is particularly the case if we consider that assets are limited in their ability to re-site once making investment decisions. Locational signals also interact closely with the connections regime. DESNZ is considering the broader set of policy levers, as set out in the REMA summer update, which includes connections and how these levers interact to support delivery of the future electricity system. Further detail on this integrated approach and how this would support delivery of the SSEP will be set out in the government’s forthcoming RNP Delivery Plan, which will be published shortly. Ensuring coherence between locational charging, connections regime and anticipatory investment frameworks will also be important. We are considering whether it could be desirable to widen the existing use of flexible connections on a time-limited basis for a limited number of assets. This could be relevant if, depending on future government decisions on the delivery of the SSEP, some connection offers were to be issued in excess of the chosen SSEP pathway. It could also be applicable for connection offers within the SSEP pathway where, for example there are delays to planned network build. In either scenario, flexible connection offers could complement other tools to mitigate the risk of higher constraint costs for consumers and could act as a backstop where locational charges or other siting levers are not sufficient to align investment decisions with strategic planning. This could support efficient outcomes, ensuring a balanced risk allocation between developers and consumers, and incentivising generators to play their part in helping to manage constraint costs on the network. Further work will be needed to assess this possibility, including to consider its consistency with wider government policy on the relative balance between different siting and investment levers as this evolves. Legacy and transitional arrangements The scale of charging reforms could lead to material changes to the level of network charges and create uncertainty and incentives that existing generation and storage assets may be less well placed to manage. Because of this, it may be in consumers’ wider interests to consider bespoke arrangements to manage the transition from the current charging regime to a new RNP regime for existing assets and for those that will Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 10 make investment decisions prior to the implementation of a new charging regime. This case is strengthened if reformed charging arrangements for new assets involve fixing charges for longer periods. For clarity, we define legacy and transitional (LAT) arrangements as measures that may be taken to affect the charging arrangements for eligible generators which are either existing assets already operating (legacy) or for which investment decisions are taken before fully implementing RNP (transitional). We recognise that this is an important issue for many generators and investors. Therefore, Ofgem with the support of the government is committed to prioritising the consideration of LAT arrangements and the policy development of any potential approach. We are also in the process of establishing a Charging Transitional Arrangements Group (CTAG) with representatives from across the sector to accelerate our work in this area. This CfI therefore explores the scope of prospective legacy and transitional arrangements, including whether these should apply to all existing and transitional assets, or only to specific groups such as scheme-backed generators under the Contracts for Difference or Capacity Market, or fully commercial assets. We set out three design choices for legacy and transitional arrangements, in which the core trade-off is the ease of implementation versus the degree of change to the current arrangements: • Retaining a parallel charging regime based on the existing methodology which updates annually; or • Phasing implementation from the existing methodology to RNP approach over a set period; or • Creating a fixed charging regime based on the existing methodology only for assets within the scope of legacy and transitional arrangements, where charges would not be recalculated once set. In assessing these options, we would need to consider the impact on charges levied on consumers, the ability of arrangements to improve investor certainty, and ease of implementation and administration. Finally, we consider the methods by which charges could be fixed – either by fixing the charge at the TNUoS rates of the year prior to the implementation of a new regime, by setting charges for these assets based on a forecast or based on the year in which FID was made. Next steps The deadline for responses to this CfI is 26 May 2026. Stakeholder input will help identify where further analysis is best focused and whether further options warrant consideration before any minded‑to positions are developed. We intend to publish a Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 11 summary of the CfI responses by late 2026. We will publish non-confidential responses on our website. Alongside this CfI, we have published an Expression of Interest (EoI) to invite stakeholders to participate in an upcoming working group on RNP charging reforms (Locational Charging Design Group - LCDG).3 The deadline for applications to this group is the 22 April 2026. We have also established dedicated engagement on legacy and transitional arrangements (Charging Transitional Arrangements Group - CTAG).4 This group will inform our view of the case for legacy and transitional arrangements and how they might be designed. Insights from our engagement groups will support the next phase of policy development. We anticipate that all materials used within meetings of the groups, as well as minutes of the meetings themselves, will be published online. Any future proposals arising from this work will be subject to further detailed design, assessment, and engagement with industry and stakeholders before any implementation decisions are made. We will continue to work closely with the government as it progresses its thinking on wider RNP policy issues to ensure regulatory alignment with other strategic policy goals. 3 Locational Charges and Regulatory Siting Levers under Reformed National Pricing – Ofgem 4 Establishing a Charging Transitional Arrangements Group under the Reformed National Pricing programme – Ofgem Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 12 1. Introduction This chapter sets out the context for the Reformed National Pricing programme and the Strategic Spatial Energy Plan, explains the purpose and scope of this Call for Input, and signposts related work, publications, timelines and next steps. Reformed National Pricing 1.1 In July 2025, the government confirmed its decision to retain a single wholesale electricity market in its REMA summer update.5 With this, government launched the Reformed National Pricing (RNP) programme, aiming to, within a national pricing model, i) deliver a more strategic and co-ordinated approach to energy system planning and development, ii) provide stronger signals for the efficient siting of new assets, and iii) increase the overall operational efficiency of the system. 1.2 Central to this vision is strategic energy system planning, driven by the Strategic Spatial Energy Plan (SSEP). RNP will turn this vision into reality by providing clearer, more predictable market signals aligned with the SSEP. This increased certainty enables timely and cost-effective construction of new generation, reducing consumer costs, and supporting a more efficient, secure, and decarbonised electricity system. 1.3 Delivering the SSEP will require aligning investment signals across multiple siting levers such as planning, seabed leasing, the connections regime, locational network charging, generation and storage investment support schemes, and network build, as set out in the REMA summer update. 1.4 Coordinating these siting and investment levers should reduce the need for capital investment in new generation and network infrastructure, lower constraint and balancing costs, and reduce uncertainty for investors. 1.5 In government’s upcoming RNP Delivery Plan, government will set out its vision and policy options on a range of siting and investment levers and how they could interact and work together to deliver an appropriate balance between greater strategic planning and the role of markets. Open letter on reforms to network charging 1.6 One of the key siting and investment levers is the reform of locational network charges for new investment. In July 2025, Ofgem released an open letter with our initial thinking on how network charging signals could be reformed to improve 5 Review of electricity market arrangements (REMA): Summer update 2025 – GOV.UK Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 13 their alignment to the strategic planning of generation and network via the SSEP and Centralised Strategic Network Plan (CSNP).6 1.7 We briefly considered how charging methodologies could evolve to better reflect the future network and energy system, given the evolving energy policy landscape. We highlighted that reforms could, for example, base charges on planned network spare capacity, make network charges more predictable and seek to send more efficient locational signals to transmission-connected demand and storage. 1.8 We also noted the need to carefully consider how existing assets should be treated in the transition to a reformed charging regime. Purpose and scope of this Call for Input 1.9 Since our July 2025 open letter, we have built upon published ideas and now present a combination of early design thinking and open-ended questions. This Call for Input (CfI) is seeking views on how to reform network charging, alongside other regulatory levers in the energy system, consistent with any potential wider reforms as part of the RNP programme. 1.10 We present several options, ranging from incremental to more significant reform of the current transmission network charging regime. Some options would involve the design of an altogether new locational charge and bring in a role for other regulatory levers. Within our analysis, we consider key trade-offs which we will explore further throughout the design process. 1.11 Irrespective of broader government decisions about the role of different siting and investment levers in delivering the SSEP and the RNP programme, and in line with the case for change set out in the next chapter, it will remain essential to reform the network charging regime to ensure it is aligned with strategic planning. It will also be necessary to review arrangements for existing and transitional assets to avoid any unintended consequences. That said, the preferred option for reforming locational network charging may depend on wider government policy decisions regarding the future role of network charging signals and how these relate to other siting and investment levers, including government-led auctions. 1.12 We invite stakeholders to share insights on how well the options for charging reform proposed in this CfI could meet our assessment criteria, and to raise any additional options we may not have considered. We welcome responses from a broad range of industry stakeholders, as these stakeholders will play a direct role in implementing the SSEP. 1.13 We will use the feedback received through this CfI to inform a minded-to position on the detailed design options for the future charging regime. We will continue to 6 Reforming network charging signals to align with the future design of Great Britain’s electricity system – Ofgem Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 14 work closely with government as it progresses its thinking on wider RNP policy issues to ensure regulatory alignment with other strategic policy goals. Links to other workstreams 1.14 This CfI focuses on transmission-level locational charging. We expect to review arrangements for distribution-level charging as reforms for transmission progress, to ensure that distribution-level arrangements remain coherent, appropriate, and consistent with the overall policy framework. 1.15 We also remain closely aligned with the ongoing Ofgem Cost Allocation and Recovery Review (CARR), which is considering network charges as part of a wider assessment of whether there are more efficient and fairer ways to allocate and recover energy system costs from consumers. 1.16 Any decisions on the role of locational charging for demand will also need to consider interactions with Ofgem and DESNZ work on demand connections and prioritisation of the demand queue. 1.17 Although this CfI touches on interactions between locational charges and the connections process, the details of the connections methodology in the context of the SSEP and the RNP programme are outside the scope of this CfI. Interactions between different levers will be considered in the RNP Delivery Plan, to be published shortly. If required, we may look into reviewing and updating the connections methodologies to integrate strategic alignment with the SSEP and RNP.7 Timeline for locational charging reforms • Late 2026: Ofgem update on CfI feedback and next steps • 2026 onwards: Ofgem work on the design of locational charging options and development of code and licence amendments8 • 2026-27: Ofgem work on the design and development of legacy and transitional arrangements • By 2029: Deliver reforms to charging arrangements, following required assessment and consultation on detailed locational charge proposals 7 NESO, as noted within its licence, is required to review the connections methodologies at least once annually and update if required. The Authority can also instruct for these connections methodologies to be updated. 8 Timing pending any introduction of new legislative powers, which is itself subject to Parliamentary time. Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 15 Related publications • Expression of Interest – Locational Charging Design Group, March 2026 Locational Charges and Regulatory Siting Levers under Reformed National Pricing • Expression of Interest – Charging Transitional Arrangements Group, March 2026 Establishing a Charging Transitional Arrangements Group under the Reformed National Pricing programme • Open Letter: Reforming Network Charging Signals, July 2025 Open Letter: Reforming network charging signals to align with the Government’s decision on the future design of Great Britain’s electricity system • Reformed National Pricing decision, July 2025 Review of electricity market arrangements (REMA): Summer update 2025 • Strategic Spatial Energy Plan: Commission to NESO, October 2024 Strategic Spatial Energy Plan: commission to NESO • Energy System Cost Allocation and Recovery Review, July 2025 Call for Input: Cost Allocation and Recovery Review • Demand Connections Reform Call for Input, February 2026 Call for Input: Demand connections reform Call for Input stages Stage 1 Call for Input opens: 26 March 2026 Stage 2 Deadline for responses: 26 May 2026 Stage 3 Responses reviewed and published: late 2026 How to respond We want to hear from anyone interested in this Call for Input. Please send your response to the person or team named on the front page of this document before the response deadline. We have asked for your feedback in each of the questions throughout. Please respond to each one as fully as you can. We will publish non-confidential responses on our website. Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 16 Your response, data, and confidentiality You can ask us to keep your response, or parts of your response, confidential. We will respect this, subject to obligations to disclose information. For example, under the Freedom of Information Act 2000, the Environmental Information Regulations 2004, statutory directions, court orders, government regulations, or where you give us explicit permission to disclose. If you do want us to keep your response confidential, please clearly mark this on your response and explain why. If you wish us to keep part of your response confidential, please clearly mark those parts of your response that you do wish to be kept confidential and those that you do not wish to be kept confidential. Please put the confidential material in a separate appendix to your response. If necessary, we will contact you to discuss which parts of the information in your response should be kept confidential and which can be published. We might ask for reasons why. If the information you give in your response contains personal data under the General Data Protection Regulation (Regulation (EU) 2016/679) as retained in domestic law following the United Kingdom's withdrawal from the European Union ("UK GDPR"), the Gas and Electricity Markets Authority will be the data controller for the purposes of GDPR. Ofgem uses the information in responses in performing its statutory functions and in accordance with section 105 of the Utilities Act 2000. Please refer to our Privacy Notice on consultations, see Appendix 4. If you wish to respond confidentially, we will keep your response confidential, but we will publish the number, but not the names, of confidential responses we receive. We will not link responses to respondents if we publish a summary of responses, and we will evaluate each response on its own merits without undermining your right to confidentiality. How to track the progress of a Call for Input 1. Find the web page for the Call for Input you would like to receive updates on. 2. Click ‘Get emails about this page’, enter your email address and click ‘Submit’. 3. You will receive an email to notify you when it has changed status. A Call for Input has two stages: ‘Open’ and ‘Closed’. Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 17 2. The case for change for regulatory siting levers This chapter outlines the current arrangements for network charging and connections as regulatory siting levers. It then sets out the case for reforming network charges, which includes the need to aid delivery of the SSEP and improve investor certainty while supporting better siting decisions. We also set out and seek views on assessment criteria that could be used in the process of designing new charges. Those include balancing between wider system value, efficiency, competition, investability, and deliverability. The current regulatory siting levers 2.1 Ofgem currently administers several regulatory levers that influence the locations of assets within the energy system. Those levers ultimately determine a) where and when parties can connect (the connections regime); and b) how much those parties will need to pay upon connecting and during their lifetime with respect to the network they use (the charging regime). 2.2 The connections regime: Ofgem oversees the regulatory framework for grid connections in GB. This includes regulating the National Energy System Operator (NESO), Transmission Owners (TOs) and Distribution Network Operators (DNOs), approving relevant code modifications, and resolving disputes. Historically, connections have been granted at firm, full capacity on a first-come, first-served basis. Between 2023 and 2025, significant reforms were introduced to both the connections process for new connections, and the existing queue, centred on prioritising mature, ready-to-connect projects that align with zonal connection capacities per technology as laid out in strategic plans. A queue milestone framework was also introduced to ensure efficient and timely connection.9 2.3 In parallel, there has been a growing voluntary uptake of flexible connection arrangements in recent years to enable faster connection of projects. These non- firm agreements allow capacity to be curtailed when local network conditions require it, in exchange for removing the requirement for non-critical enabling works10 to be complete before assets connect to the system. 2.4 The transmission network charging regime: Transmission network charges in the context of investment levers currently fall into two broad categories: connection charges recover the costs associated with the provision and maintenance of connectees’ sole-use connection assets;11 and Use of System charges recover the ongoing costs of maintaining, expanding and reinforcing the 9 Queue Management Guidance 2025 – NESO 10 The minimum transmission reinforcement works local to the point of connection which need to be completed before an asset can be connected to and given firm access to the transmission network. 11 These include both upfront costs and ongoing liabilities. Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 18 transmission system. Transmission Network Use of System Charges (TNUoS)12 are set to i) send a cost-reflective signal intended to drive efficient siting decisions13; and ii) ensure each TO receives the allowed revenue to which it is entitled under the terms of its price control. Broadly speaking, if a generator is located a long way from demand centres, their charges will tend to be higher than those levied on a generator located closer to demand. This reflects that, on average, the greater the distance between generation and demand, the greater the eventual need for network expansion.14 2.5 As shown in the table below, the majority of TNUoS revenue is recovered from demand, predominantly via non‑locational demand residual charges. This CfI focuses primarily on reform of the locational forward-looking element, which primarily affects generation and storage. Table 1. Forecast TNUoS revenue recovery from demand and generation (including storage) in 2026/2715 TNUoS revenues Demand (£bn) Generation (£bn) Locational (forward- looking) 0.1 1.5 Non-locational 6.3 (0.3)16 Total 6.4 1.2 2.6 Connection charges are inherently site-specific, and TNUoS charges vary by location. We refer in this document to both “TNUoS” and “connection charges” where relevant, and use “network charging” as a collective term for both concepts 12 TNUoS charges contain both a locational (or forward‑looking) element and a residual element. Forward‑looking charges reflect how users contribute to future network costs through their use of the network at a particular time and in a particular location. Residual charges are applied as a non-locational top‑up to recover the remaining allowed revenue once forward‑looking charges have been set. 13 The current methodology relies on an Incremental Cost Related Pricing, Direct Current Load Flow model (the DCLF ICRP, commonly referred to as “the transport model”). The transport model creates charges by modelling the incremental power flows that would arise from an additional 1MW of generation at any given ‘node’ on the transmission network. These incremental flows are then translated into a locational charge (or credit) reflecting the long-run reinforcement cost that those flows would incur in a least cost network expansion, based on the historical costs of such expansion. The resultant charge broadly reflects the relative impact of additional load on the transmission system. 14 TNUoS charges are also set to recover costs for offshore transmission. 15 2026-27 Final TNUoS Tariffs Report – NESO 16 The Limiting Regulation (part of retained EU law) requires that overall average TNUoS charges for generation are within the range €0-2.50/MWh. A negative adjustment tariff is applied to charges for generation to stop them from exceeding this range. Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 19 where the context requires. We expect Distribution Use of System (DUoS) charges to be reformed following any reform to TNUoS and transmission connection charges. Case for change Network charges were not designed to align with strategic plans 2.7 Use of system network charges have been designed to reflect the incremental cost of using the network on an annual basis. Generation and storage asset developers then internalise these costs as part of their investment decisions. The underlying assumption is that market‑based decisions on where generation and storage locate lead to efficient siting outcomes, which then inform subsequent network investment decisions. 2.8 The SSEP, combined with the CSNP, will take a long-term view that optimises investment across generation, storage, and network assets, to ensure a plan- reflective, coordinated approach. This means that the purpose of network charges may be broadened beyond reflecting network costs to achieving an outcome aligned with the plans. 2.9 Current network charges neither reflect existing or planned spare capacity in specific areas, nor the SSEP’s consideration of structural constraints and wider system cost drivers. Instead, those charges rely on reflecting the additional network costs arising from transmitting electricity over longer distances. However, if the network, based on a plan, is built in anticipation of generation locating further away from demand, a generation charge based on distance from demand centres may drive against the plan, encouraging misalignment. It may be useful in the future for charges to reflect where on the network there is spare capacity, meaning where network components are structurally underutilised and additional load could be accommodated without requiring network reinforcement. 2.10 The sequencing of investment remains important under a strategic plan. Even when assets are built according to a plan, there will still be a need to ensure that assets are incentivised to locate first in areas that minimise overall consumer costs. The absence of a clear system signal could mean investment moves toward the SSEP zone that appears financially most attractive to individual projects, rather than the zone that initially best supports the plan. This affects both which SSEP zone a project selects and the timing of a project commissioning relative to network readiness. This could lead to constraint costs rising above structurally efficient levels or increase the risk of underutilised or stranded network capacity during transitional periods. Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 20 2.11 The combination of various regulatory levers such as network charges and connection offers17 would be important in terms of efficient sequencing. This includes ensuring that assets are not commissioning until sufficient network is in place, or in excess of planned network capacity. This could protect consumers from the risk of inefficiently high constraint costs. Strategic Spatial Energy Plan (SSEP) The SSEP18 will be a long‑term, whole‑system plan that sets out where and when major energy infrastructure should be built across a country or region. The plan will help to inform which zones in Great Britain are most appropriate for new generation and storage projects. In doing so, it will consider which zones are planned to have sufficient network capacity, where environmental risks are lowest, and where planning processes are likely to be more streamlined. It will also support anticipatory network investment decisions, which will be planned through the CSNP. In the context of siting of assets, the SSEP will be crucial in ensuring coordinated investment across generation, storage, demand, and networks infrastructure. In the absence of a plan, network investment may lag generation and storage investment. Equally, assets may locate where there is insufficient network infrastructure, or generation and storage may not locate to areas where anticipatory investment is planned. Altogether, those could lead to higher than necessary network constraint costs, or stranded network investment. The SSEP can inform some locational value but not all 2.12 The draft SSEP publication will use 19 spatial onshore zones (as well as 19 offshore zones).19 However, network constraints and spare capacity may still exist within these onshore zones, across both transmission and distribution voltage levels. As a result, there may remain a need for an additional mechanism to provide signals on the most efficient connection points within a zone (meaning intrazonal signals). Both interzonal and intrazonal signals could, in principle, be delivered through a locational charge applied within each of the 19 zones. Investment decisions may be distorted if developers cannot react to an annually re-calculated charge 2.13 Investors and developers internalise charges as part of their investment decisions at the point of making those investments. A charge that cannot be accurately 17 Including elements such as flexible connection offers. 18 For further detail, please see: Strategic Spatial Energy Plan – Commission to the National Energy System Operator 2024 – GOV.UK 19 SSEP Transparency Update – NESO Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 21 predicted at that point could lead to sub-optimal investment decisions from a system perspective, leading to higher costs to consumers. 2.14 If investors and developers perceive charges as difficult to predict, this could mean that they need to reflect a broader range of possible charges during their investment decisions. This in turn could result in risk premia being added to their bids in different markets. When those premia are based on factors that developers are not well placed to predict – and therefore cannot effectively respond to – they can be detrimental to consumers. In a strategically planned world, there might be greater scope for more stable charges that reflect the planned evolution of the system, rather than changing annually. The need for locational signals in informing demand investment 2.15 Driving demand toward locations with an excess of generation capacity has the potential to save on investment and constraint costs. Strategic planning to date has primarily focused on generation and storage. However, rapid growth in certain forms of siting‑sensitive demand, such as data centres, can materially influence reinforcement requirements and constraint costs, particularly in areas with limited network capacity. In the absence of effective locational levers for such demand, system costs may rise - costs that are ultimately largely borne by consumers. 2.16 Parallel work is underway to address the rapid increase in demand connections, particularly from data centres. Through our recent call for input on demand connection reform,20 we outlined the challenges this growth creates and set out a programme of work - Curate, Plan, Connect - to address them. As part of this joint programme, government has set out proposals21 to designate relevant strategic plans and align data centre connections to regional infrastructure targets as a means of balancing infrastructure investment with accelerating network connections and managing costs. 2.17 Within that context, this CfI seeks views on whether, and in what circumstances, demand‑side locational investment charges or related signals could complement the plan‑led framework. Any such approach would need to recognise that some types of demand have limited ability to respond to locational investment signals, while also ensuring timely connections. 20 Demand Connections Reform Call for Input – Ofgem 21 Accelerating electricity network connections for strategic demand – GOV.UK Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 22 Assessment criteria for locational charging reforms 2.18 A set of assessment criteria is outlined below. These could be applied to assess the suitability of different locational charging options as the process moves toward discounting and shortlisting. Table 2. Criteria for assessing locational charging reform options Criteria Description Wider system value Degree of alignment with SSEP outcomes by accounting for wider system value Efficiency Delivers overall benefits for consumers and fair allocation of costs and risks, while appropriately reflecting system costs22 and/or network costs Investability Charges are predictable, transparent and allow assets to respond in a timely manner Enabling competition Enables sufficient competitive dynamics in the system, driving costs down for consumers Deliverability Not unduly complex and can be implemented within pre-set timelines and a reasonable budget Q1. Do you agree with our assessment criteria for locational charging options? 22 Such as transmission network constraint costs. Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 23 3. Options for interzonal locational charges This chapter sets out the options under consideration for the reform of transmission network charges to provide a locational signal between SSEP zones (interzonal). These range from a least-change option, retaining the current charging methodology with targeted improvements, to more transformative change, such as setting charges via auction. In general, we discuss: • How the options could (directly or indirectly) incentivise the efficient use of network capacity, and facilitate SSEP alignment; • Implementation – including complexity and timely delivery; and • Future work needed to further understand the options and be able to properly assess them. Potential options for interzonal locational charges 3.1 This chapter outlines high-level options for interzonal locational charges, which would send a locational investment signal differing between SSEP zones. In general, we anticipate that these would be implemented through TNUoS charges. These are early-stage ideas intended to stimulate discussion and gather industry feedback. They are non-exhaustive and do not indicate any preferred approach. We welcome all suggestions on other methodologies that could deliver benefits under RNP. 3.2 The options, set out from incremental to more transformative changes from the current arrangements, are: A. Targeted changes to the current charging regime B. Network utilisation impact charge C. System and constraints impact charge D. Metric-based charge E. Plan-based auction pricing 3.3 These options vary in their basis. Under Options A and B, charges reflect long-run incremental network cost (as they do under the status quo). Other options could reflect wider system costs; for example, under Option C, charges would relate to an asset’s effect on system constraints, reflecting projects’ wider system impacts. 3.4 Any of these options could be applied in isolation. In principle, the core elements of these approaches could be combined in a hybrid approach, though doing so may introduce additional complexity and delivery risks. Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 24 Q2. Do you have a preference for any of the five options? If so, why? 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? Q4. How does each option perform against the assessment criteria set out in Chapter 2? Q5. Are there options not considered here which we should be exploring? If so, please provide detail. Option-specific questions can be found at the end of each subchapter. Option A: Targeted changes to the current charging regime 3.5 TNUoS is currently based on an Investment Cost Related Pricing (ICRP) methodology. As set out above, this methodology uses the transport model to determine which specific network components are used by the electricity generated/consumed by network users on its route from generation to final demand, and charges network users accordingly. The model assumes that the network is already fully utilised and therefore that any additional flows resulting from generation would require reinforcement. 3.6 One potential approach could be to retain much of the current TNUoS charging methodology as it stands today, while introducing targeted changes to improve predictability and attempt to better facilitate the SSEP. 3.7 This could, among other features, possibly involve: • Replacing the current 27 generation zones with the 19 planned terrestrial SSEP regions.23 • Introducing a “bolt-on” reduction in charges for under-utilised circuits, to capture the impact of spare capacity.24 23 We acknowledge the methodology underpinning the 27 generation zones was being revisited via code modification CMP419, prior to the government’s decision on REMA, and that there are elements under today’s arrangements that may no longer provide an adequate basis framework for the objectives of the SSEP. 24 A reduction of this kind, where a 25% discount was applied to under-utilised lines, was applied in the original TNUoS model in England and Wales but removed as part of BETTA charging reforms on the grounds that the discount was not cost-reflective. Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 25 • Modelling the future, planned network rather than the existing one (discussed further under Option B, and in Chapter 6). Rationale and further considerations 3.8 Modifying the existing transport model could be comparatively straightforward to implement, as it would involve the least change and may require minimal adaptation from market participants. However, the suitability of this option, particularly for providing an interzonal locational signal, would depend on how well changes enabled it to send an appropriate signal reflecting the utilisation of network capacity. Any attempt to account for spare network capacity, such as a flat discount for underutilised circuits, would likely be supplementary, rather than inherently incorporated into the methodology, and might be relatively crude. This may limit its ability to deliver efficient and/or accurate locational signals aligned with system needs. 3.9 Additionally, this approach may not address some of the issues with the current charging arrangements identified earlier in this CfI. 3.10 More fundamental changes may be needed for charges to complement the SSEP effectively. 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 could be used to reflect spare capacity and how it could be done effectively. Option B: Network utilisation impact charge 3.11 Another approach could be to develop a new charging methodology, a network utilisation impact charge (NUIC). This type of charge would remain based on the principle of charging assets according to the network long-run marginal cost (LRMC) incurred by a siting decision but would move beyond the limitations of the current model. LRMC‑based charges, including the current TNUoS regime, are designed to reflect the costs of expanding the network infrastructure (the investment in additional network capacity required to accommodate further increments of generation or demand utilising the transmission network). As such, NUIC would not take account of the wider costs associated with managing Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 26 constraints on the existing network but would seek to improve the representation of network utilisation in a network LRMC-based charge. 3.12 NUIC would be a middle ground between incremental changes and a full redesign: it retains cost‑reflective charging principles while adapting them to a strategic planning paradigm. We can consider examples from other jurisdictions that use different LRMC approaches to network charging. In Sweden, reforms proposed for implementation in 2027 include a forward-looking LRMC approach based on load flow modelling.25 While it also assesses the incremental impact of new supply and demand at specific connection points, the model differs from the GB transport model. It simulates projected generation, demand and network conditions over a defined period of time to determine whether additional supply and demand would overload the grid.26 This contrasts with the current GB transport model, which assumes all lines are fully utilised and models power flows to derive a distance‑based measure between supply and demand, from which charges are determined. 3.13 Under this proposed approach, where an incremental addition does not lead to grid overload, the LRMC component of the charge is set to zero, which indicates that the model can reflect spare capacity on the network. A model of this type - able to represent spare capacity and generate charges that better reflect the impact of projected network utilisation - could encourage assets to locate in less constrained areas, whether relative to the SSEP or based on the actual profile of network build-out.27 This may be a useful feature to support the connection of SSEP‑aligned assets or those that minimise constraints, particularly where the SSEP and CSNP drive substantial anticipatory network investment. 3.14 Another LRMC-type approach could involve linking charges to an asset’s potential impact on the timing of future network reinforcement. Approaches of this nature include methodologies such as Long-Run Incremental Cost (LRIC) and Forward Cost Pricing (FCP), both currently applied for distribution charging at the EHV level in GB.28,29 25 Review of the transmission network tariff and proposal for changes to the transmission network tariff model – Svenska kraftnät 26 The Swedish proposal would project the energy system for only the following year, but in theory it would be possible to model energy systems across different time horizons to better align with the SSEP. 27 See Chapter 6, Technical design choices, for further information. 28 EHV means Extra High Voltage, typically referring to the level of the distribution network with a voltage of 33kV or above. 29 The first LRIC and FCP approaches to network charging were published in around 2007 by Bath University and G3 (Scottish Power, Energy Networks and SSE Power Distribution and Central Networks), respectively. They were subsequently adopted as the two common distribution use of network charging methodologies. Currently, 8 of 14 Distribution Network Operators use an LRIC methodology, while the remaining 6 use a FCP methodology. Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 27 3.15 LRIC and FCP approaches typically use demand projections and information about underutilised network capacity to calculate the time before needing to reinforce the network. Charges are then informed by how an increment of new generation or demand might affect this timing, often assessed through changes in the net present value of future investment costs. 3.16 In principle, a variation of these approaches can create a locational network charge that reflects both network utilisation and the relative position of supply and demand, with assets potentially being rewarded where they defer reinforcement and charged where they bring it forward. Approaches of this type, reflecting spare capacity on the network, could help support connections in areas where significant reinforcement has taken place. Rationale and further considerations 3.17 The introduction of NUIC would continue to send investment signals based on the long-run network cost that a prospective asset would impose on the system. This is consistent with the principles that have underpinned charging in Great Britain since privatisation and would represent a less significant shift than some of the other options set out below. It would, however, require adapting an existing model for a more strategically planned GB context. 3.18 Reflecting spare capacity could improve cost-reflectivity and alignment with the SSEP. Depending on the methodology adopted, it could provide a more accurate reflection of the costs associated with asset siting decisions than the current transport model. It could do so by representing and encouraging connections in areas where spare network capacity exists or is planned. 3.19 NUIC may offer more refined locational signals, but questions remain about how well they might align with the SSEP more broadly. This would depend on the set of inputs and assumptions used to model the future energy system. Using outputs from the SSEP or CSNP as a proxy for the future energy system, and as inputs to the load flow power system model used for charging, could improve plan- alignment of the signals produced. 3.20 Similarly, for methods such as LRIC, the concept of time to reinforcement may need adapting to align with strategic plans. Existing cost allocation methods like LRIC were designed for a world in which network expansion responds incrementally to load and generation growth, rather than one in which investment is determined through long-term planning. ‘Time to reinforcement’ is usually based on assumed long‑term demand growth, so such methods would need reworking to align with a planned network. 3.21 Depending on design, alternative LRMC methods may still produce relatively volatile and/or unpredictable charges. LRIC at EHV has produced volatile charges, which would need to be addressed if an LRIC-type method is considered further. This type of approach fundamentally requires looking forward over time - using Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 28 assumptions about demand growth and the future network. There may therefore be a wider set of subjective inputs compared with the current ICRP model, which could result in charges that are more difficult to predict. However, as discussed above, inputs could be linked to published assumptions, such as the SSEP or CSNP, which could improve predictability, particularly if larger proportions of charges are fixed in advance. 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? 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)? 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? 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. Option C: System and constraints impact charge 3.22 Under this option, a locational charge reflects wider system costs including the long-run costs of structural constraints. It does so by reflecting the locational value of energy in a similar way to a zonal wholesale market but modelling it over a long period rather than having it calculated in every settlement period. Charges could be calculated for each technology type as the difference between revenues under national pricing and zonal pricing. This difference could act as a proxy for locational value over the modelled period, internalising structural and planned constraints. 3.23 In theory, a purely operational approach would attempt to reflect the impact a new asset has on the system based on current network build and the locational siting of generation, demand and storage. Using real-time operational values directly could lead to significant charge volatility and make it difficult for investors to form reliable expectations. To address this, the operational costs could instead be modelled over several years and averaged out over that period, producing a more stable charge while still reflecting underutilised network capacity. Under Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 29 this approach, market participants would not be exposed to the half hourly operational signals of the wholesale market as they would in a locationally priced wholesale market, making it a less volatile signal for investors. 3.24 If this approach were modelled using the same network and siting assumptions as the SSEP and CSNP, it could provide a consistent charge reflecting wider system value and supporting informed siting decisions. One way to produce such a charge could be to compare an asset’s modelled operational wholesale revenues in two scenarios: a national market where curtailment is compensated, and a zonal market with different zonal prices and no curtailment compensation.30 NESO could potentially model these scenarios over a multi-year period using the same planned network assumptions and model used for the SSEP. 3.25 This type of approach could reflect the wider system impacts of asset siting decisions. For example, generators in export-constrained areas, where modelled zonal revenues would be lower than national revenues, could face higher charges in comparison to those in import-constrained areas. Unlike the current ICRP model, it would not directly send signals related to triggering network build, but it could indirectly reflect wider system impacts. Using CSNP planned build in the modelling, and aligning the modelled zones with the SSEP zones, could help ensure this charging approach is consistent with strategic planning. Rationale and further considerations 3.26 Aligning network charges with the SSEP and CSNP could help support wider system optimisation. In principle, charges could incentivise generation to locate in priority areas and make better use of planned network capacity, particularly where the SSEP identifies future need and anticipatory investment is underway. A charge that reflects strategic planning could balance cost‑reflectivity with predictability, giving investors greater confidence while potentially improving the accuracy of the locational signal relative to ICRP. Linking the charging model to the published SSEP and CSNP may also enhance transparency and provide clearer, forward‑looking signals. 3.27 Even in a strategically planned context where transmission‑level investment is set in advance by the CSNP, charges could still convey an investment signal that reflects how siting decisions interact with constraints, without needing to reflect each project’s incremental impact on future network build. 3.28 However, there are risks that need to be managed. If network charges and SSEP signals diverge, for example due to delays in network build-out, this could lead to persistent constraint costs, inefficient investment, and confusing signals for 30 This idea is similar to the proposal put forward by Scottish Power in CMP433 as OpTIC (Optimised Transmission Investment Cost), which would replace the current transport model. Call for Input: Locational Charges and Regulatory Siting Levers under Reformed National Pricing 30 developers, particularly if generators locate based on this signal before network upgrades are complete. 3.29 Implementing this design would rely on system modelling with a range of important assumptions. As it no longer models an estimate of the long-run marginal network cost, it is a more significant change to underlying prices than maintaining ICRP or adopting an alternative LRMC model as shown above. Additional changes would also be required, such as an alternative approach to local circuit charges,31 which are currently set based on ICRP methodology. Given the scale of change and the modelling required, there might be risks to consider ahead of implementing such an option. Q11. What additional measures might be required to deliver effective locational signals using the approach in Option C? Q12. Are there any alternative approaches integrating SSEP outcomes to send a signal reflecting assets’ wider system impact, including constraints? Option D: Metric-based charge 3.30 One way to simplify charges while potentially aligning them with the SSEP might be to base them on metrics that reflect how network conditions are expected to develop, including how spare network capacity evolves over time by SSEP zone. 3.31 For example, charges might be linked to the SSEP using a metric such as the ratio of actual generation capacity of a given technology in a zone to the SSEP’s planned generation capacity, with charges rising as the capacity in a zone approaches the planned capacity. This would lead to lower charges in zones where generation is lagging behind the plan, incentivising additional build where it is most needed. 3.32 Alternatively, a metric-based