06 April 2023
Launched back in August 2017, Ofgem created the Targeted Charging Review (TCR) as part of its ongoing efforts to create a fairer electricity network. Aiming to reduce confusion across the network, the TCR ensures that network charges (explained below) are cost-reflective and paid by the relevant parties, undoing the unfair costs placed on certain networks as a result of previous charging structures.
The TCR has been shaped around three core questions:
Here, we'll outline what the recent TCR changes have brought into effect, as well as the upcoming changes set to take effect in the future.
Network charges are fees paid by electricity network users to compensate network operators for the building, maintenance and operation of the network. These charges are considered ‘non-energy’ costs and are supplementary to the cost of electricity itself.
There are four network charges to be aware of:
A far-reaching programme, with further changes that have already taken place in 2021 and 2022, the TCR has helped to bring a degree of equitability to the network, allowing for a fairer distribution of non-energy costs.
And despite the obvious difficulties which COVID-19 brought with it, changes from previous years still successfully took place. Therefore, it's crucial that businesses should start preparing for potential revised non-energy charges however they can.
Right now, some users are able to change their operating processes in order to circumvent their transmission and distribution costs. Often, this is done by powering down during the peak times (known as load shifting) that are expected to be used as part of annual cost calculations.
The main changes that have already come into effect as part of the Targeted Charging Review are as follows:
In some instances, DUoS costs will continue to be charged on a per unit basis.
From April 2023, charges for the Transmission Network Use of System (TNUoS) will change to become more fixed, in a similar way to the changes applied for DUoS in 2022.
TNUoS will be charged as a fixed (£/day) cost for the majority of demand customers, as opposed to the previous billing method of (£/MW) for Half Hourly (HH) metered usage and (p/kWh) for peak consumption for Non-Half-Hourly (NHH) metered usage.
From April 2023, the cost of the BSUoS will also be levied directly onto customers, essentially doubling the rate of their BSUoS bill. This means that transmission-connected generators will no longer have to pay BSUoS costs. Why is this? It’s because recovering BSUoS through generation has been deemed inefficient – the costs, including the risk premium and transaction costs, are passed through into wholesale electricity costs and paid by the customer.
As such, generators will no longer need to take into account the cost of BSUoS and may be able to offer cheaper wholesale power.
Ofgem is also changing the way BSUoS will be charged, going from a variable rate to a fixed one. It’s hoped that this will provide more forecastable costs in the short term. Ofgem has stated that National Grid ESO (NGESO) will be required to fix BSUoS rates for six months at a time, nine months before the start of the period in question.
So, for charges from April 2024 to September 2024, NGESO will confirm rates by July 2023.
Organisations that have low Agreed Capacity and do not operate Triad avoidance may see a reduction in their Distribution and Transmission costs. Organisations without an Available Supply Capacity (ASC) – who are charged an all-inclusive unit rate – won’t see any direct change until their electricity contract renewal.
Large organisations using methods such as load shifting or operating on-site generation during periods will face the brunt of the new changes’ impact since these measures will no longer have an effect on the reduction of their costs. If this applies to you, then you may want to review your Agreed Capacity ahead in order to reduce your future exposure to these increased charges.
It's also worth noting that changes to the Transmission Charge will not be clearly flagged on bills. While some organisations may see their DUoS charges reduced, the TNUoS charges may be reflected in the increased costs of their standing charge. To find out which band your business falls in, as well as the breakdown of the cost, don’t hesitate to get in touch with us – or whoever your supplier is.
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