Case Study: Designing an Ofgem-Compliant Private Network Tariff to Enable Third Party Access
Background
The owners of a nationally significant UK infrastructure asset operate and maintain a complex private electricity distribution network, which supplies a wide range of on-site third party users. In 2023, the owners were in the process of progressing commercial negotiations with a charging hub provider who sought to deploy EV charging infrastructure on site.
The charging hub’s business model relied on accessing its own electricity supply, enabling it to provide chargers with electricity that is generated and procured through its own licensed supplier, rather than purchasing power from the site. This introduced a new set of regulatory, operational and commercial obligations for the site as a licence-exempt distribution network operator.
Semarts was engaged to support the operators through this process, ensuring that Third Party Access (TPA) could be facilitated compliantly – without exposing the owners to material financial under-recovery or long-term commercial risk.
The Challenge
The immediate trigger for engagement was a requirement placed on the owners to progress with plans for rapid electric vehicle charging points on site, following planning permission to expand its operations.
The site was progressing terms with a prospective charging hub provider that had expressed a desire to utilise Third Party Access in order to procure its own power. This presented several challenges, including:
Once Third Party Access was formally requested, the operators would assume statutory obligations under Schedule 2ZA of the Electricity Act 1989.
Any use of system charges imposed by the site would need to be based on an Ofgem-compliant charging methodology, capable of regulatory scrutiny.
Existing tariffs charged to tenants on the private network were under-recovering costs; critically, they were neither fully recovering the cost of power from their licensed supplier nor the network’s use of system charges.
Without intervention, the proposed charging hub arrangement would have resulted in implicit subsidy, with the site absorbing costs that should properly be passed through to the third party.
The Semarts Approach
Semarts supported the team across three interlinked workstreams – Third Party Access readiness and risk management; tariff methodology and redesign; and commercial for the charging point agreement. Below are more details on how we supported and streamlined those areas.
1. Third Party Access Readiness and Risk Management
Semarts guided the site through the practical requirements of facilitating TPA, including:
Clarifying obligations triggered by an expression of interest under Schedule 2ZA.
Advising on the distinction between distribution activities and supply activities, ensuring costs were treated correctly.
Highlighting common pitfalls, including timing risks, information provision requirements and restrictions on delaying access pending Ofgem approval.
This ensured the operators entered these commercial negotiations with a clear understanding of its duties and risk exposure.
2. Tariff Methodology Review and Redesign
During the engagement, Semarts carried out a detailed review of the existing private network tariffs and underlying cost recovery. This identified that:
Existing tariffs were not capturing the full primary cost of power, including supplier non-commodity charges.
The site’s Use of System charges were materially understated, with several recoverable cost categories omitted or under-allocated.
The current allocation of costs between the site’s consumption and third party users could be improved.
Semarts developed an integrated tariff methodology, aligned with Ofgem principles, to ensure that:
Costs were aligned with the distribution network.
Allocation of costs is objective, transparent and non-discriminatory.
Supply costs and distribution costs are clearly separated, allowing for future Ofgem approval if required.
As a direct result, the site significantly increased annual cost recovery, with the uplift recurring year-on-year.
3. Commercial Advisory for the Charging Hub Agreement
Semarts provided targeted advisory support on the commercial terms proposed with the charging hub provider, including:
Identifying network costs that must be passed through under a compliant Use of System arrangement.
Preventing inadvertent subsidy of EV charging activity by the network and its tenants.
Prior to Semarts’ involvement, several recoverable elements were missing from the proposed commercial structure. Addressing these ensured the arrangements were value accretive.
Delivery and Efficiency
Despite the scale of impact, Semarts delivered the engagement with minimal operational burden:
One day on site to review the network and undertake workshops.
A small number of focused 30-minute meetings with key stakeholders.
A structured Request for Information, returned in under one week.
This allowed the operators to move forward with confidence, without delaying commercial negotiations or internal decision-making.
Outcomes
The engagement delivered measurable and lasting benefits:
Significant increase in recurring cost recovery.
Ofgem-aligned tariff methodology.
Clear understanding of TPA obligations and risks.
A commercially robust position to negotiate with third-party energy providers.
As a result, Semarts has been re-engaged for the next three years to provide ongoing support, including annual tariff updates, regulatory alignment and advisory input, as the site’s energy strategy evolves.
Key Takeaways
Third Party Access is not just a regulatory issue; it is both a commercial risk and opportunity.
Suboptimal existing private network tariffs can mask both significant and recurring under-recovery.
Robust tariff design protects a network’s compliance and financial sustainability.
Targeted and specialist input can deliver outsized financial returns with minimal disruption to those on site.