Reducing network capacity: strategic move or costly mistake?

With electricity prices continuing to rise, businesses are understandably keen to find ways to reduce energy spend.

Checking you’re not overpaying for the connection capacity at your sites is one way to potentially make considerable savings, especially if you’ve inherited a premises from a more energy-intensive business, or over-estimated your requirements.

However, once you’ve reduced your import capacity, it can be very difficult to increase it again in the future. So this isn’t something any business should rush into.

What is import capacity – and why does it matter?

Import capacity, known more commonly as Maximum Import Capacity (MIC), is the highest amount of agreed power your business can draw from the network at any time. Your connection agreement with your local Distribution Network Operator (DNO) will stipulate a Maximum Import Capacity – which is measured in kilovolt-Amps (kVA).

Your MIC will determine the amount you pay for the transmission and distribution charges added to your overall electricity cost. These charges are calculated according to the capacity ‘band’ your consumption and voltage requirements fit within. There are around 16 bands and, generally speaking, the higher the band, the higher the charge.

For example, the difference between fixed transmission charges Transmission Network Use of System (TNUoS) for High Voltage (HV) 1 and HV2 bandings is £85.31 per day, or £31,140 per year. When it comes to Extra High Voltage (EHV) 1 and EHV2, the difference is £833.90 per day – or £304,375 per year.

Distribution charges (Distribution Use of System (DUoS) are also calculated according to import capacity bandings – but an element is also related to your consumption at different times of the day (red, amber, and green rates). Plus, they vary by region. So it’s harder to give a direct comparison. But let’s take the East Midlands as an example: the difference between the fixed DUoS charge for HV1 and HV2 bandings is £5.06 per day, or £1,846 per year.*

As these examples show, dropping down a band could potentially save a business over £305,000 per year.

No reduction until 2031

Although this may sound like a quick win, in practice, changing your import capacity is rarely straightforward.

The fixed rates you pay to National Grid and your DNO are linked to charging periods overseen by energy regulator Ofgem. These periods last for five years, so charging bands are set for this duration too.

This means that in most cases, reducing your kVA capacity will not immediately result in a change to your banding or fixed charges. In fact, even if you decided you wanted to reduce both now, these changes won’t take effect until the start of the next banding period, which begins in March 2031.

Prior to this, your DNO will have an ‘observation period’ to review any band changes – with the next one running from April 2028 to March 2029. To ensure your new kVA is considered for updated banding, you must have an agreed new connection agreement in place by January 2029.

The only exception applies if you reduce your capacity by 50% or more, which is uncommon. In such cases, a reduction to your band can be implemented more quickly by the DNO.

However, you can benefit from some cost savings sooner. Once you have agreed a reduced MIC/kVA connection agreement with your DNO, you will see an immediate change to your daily kVA rate (another part of your DUoS charge).

For example, a business in the East Midlands reducing their capacity from 1,000 kVA to 600 kVA would see their daily kVA cost decrease from £85.70 to £51.42, resulting in an annual saving of £12,512.

Making sure a reduction is the right thing

As mentioned earlier, once you reduce capacity at a site, it can be very difficult to increase it again.

It’s therefore imperative to conduct a thorough audit of both your current, short-term, and long-term electricity needs – including any plans to expand your operations and/or increase production processes or volume.

With the UK’s net zero target of 2050 on the horizon, electrification of any current oil or gas-fired processes is also an important consideration. For example, transitioning from a petrol to an electric vehicle (EV) fleet, or electrifying heating or steam generation.

Important steps to consider

If you decide that reducing network capacity is something you do want to explore, the following steps may be helpful to consider:

1. Start by asking your electricity supplier to review your maximum demand. They should be able to look into your consumption peaks for the past few years and supply annual and monthly peak figures.

2. You then need to understand these peaks – are they likely to repeat? And how might they change with future business plans for expansion or electrification? It may be an idea to consult with an independent electrical engineer to help decipher this.

3. Once you’ve worked out a realistic future peak figure, it’s advisable to add a buffer of 10-20% to your maximum expected kVA demand to determine a suitable MIC. This buffer can help to accommodate any short-term demand spikes and avoids penalties or constraints from exceeding your agreed capacity. The exact percentage can vary depending on the nature of your load, variability in consumption, and your DNO’s guidelines, so it’s best to consult with your DNO to determine what’s appropriate for you.

4. If you decide you do then want to pursue reducing your capacity, you must contact your DNO to ask for an official review to amend your connection agreement. Each DNO will have their own process and timescales, although the next observation period for bandings won’t happen until April 2028 to March 2029. So your request will need to be submitted in advance with an updated kVA in place by January 2029.

5. Finally, it’s worth noting you need to be the site owner – not a tenant – to ask for a review.

If you would like to discuss your options regarding network capacity and see if you could reduce your energy costs, get in touch with our team today.

*EHV DUoS charges are site specific rather than based on a tariff, so comparisons are not possible.