The Targeted Charging Review (TCR), is an Ofgem initiative set up with the aim to modernise the electricity network and ensure the fair allocation of Transmission and Distribution charges for businesses and consumers. The National Grid estimates that the reforms will save them £300m a year.
Distribution Use of System (DUoS) and Transmission Network Use of System (TNUoS) charges are the costs for transporting energy from the point of generation across the National Grid, and on to end users. These charges can account for 16% of your electricity bill.
The reform proposal from Ofgem will see consumers DUoS and TNUoS charges linked to their Available Supply Capacity (ASC). Depending on their available capacity, organisations could see significant increases to their bills as a result of the new charging model.
Organisations that currently flex their operations to reduce their energy use at specific times and so avoid these costs, otherwise known as load shifting, or run on-site generation to avoid Triads, are expected to be heavily impacted.
Initially, Ofgem announced both charges would be introduced from April 2021. However, following a 12-month delay, in April 2021 Ofgem advised the Transmission charge reforms would enter consultation with a view to delay the Transmission changes until April 2023. All changes have now been announced.
What is changing?
DUoS costs are recovered based on a number of different charges, including consumption (p/kWh), standing (p/MPAN/day), capacity (p/kVA/day) and reactive power (p/kVArh/day).
The DUoS consumption based charges applicable to an organisation are calculated using rates that differ depending on the time of use. These different periods are often referred to as Red, Amber and Green time bands.
From April 2022, the DUoS consumption based charges will continue to use the same Red, Amber and Green charging methodology, though the overall effect of the rates will be decreased and the DUoS daily charges will be increased accordingly.
Currently the specific DUoS rates are driven by an organisations connection type (Low Voltage, High Voltage, Extra High Voltage) and distance from a grid connection point (Line Loss Factor). From April 2022 this will change so the scope for how organisations will be charged will also take into account their Available Supply Capacity, with those with higher ASCs being charged significantly higher DUoS daily rates.
TNUoS charges are currently charged on a peak demand methodology (p/kW). The methodology is calculated using Triads; periods of peak electricity demand between November and February each year, typically between 4-6pm.
Now the Transmission reforms have been introduced, around 90% of the charges have be changed from being based on an organisation’s Triad consumption to being charged on a fixed rate basis as follows:
- Half-Hourly Metered Supplies: on a fixed (£/Kw/day) basis aligned to an organisations Available Capacity. The rates will be determined by bands with increasing charges depending on the ASC.
- Each band has a lower and upper limit, and so by adjusting the ASC and moving into a lower band organisations could reduce their TNUoS charges.
- Half-Hourly Unmetered Supplies: on a new consumption based charge at p/kWh.
- Non Half-Hourly Supplies: also on a consumption based charge, but between a set period of 4-7pm, at a p/kWh rate.
Balancing Service Charges
From April 2023, Ofgem changed the Balance Services Use of Systems (BSUoS) charges so that transmission connected generators will no longer have to pay BSUoS costs. Following this change, the cost will be charged to the end user instead. This is because recovering BSUoS through generation is inefficient as the costs, including risk premium and transaction costs, are passed through into wholesale electricity costs and are ultimately paid by the customer.
Due to this change, generators will no longer need to take into account the cost of BSUoS and may be able to offer cheaper wholesale power.
In addition to this, Ofgem is changing the way BSUoS is charged, from a variable rate to a fixed rate. BSUoS costs are expected to be high this winter because of the continued high market prices, and so the cost to end customers is hard to estimate. To mitigate the increase there has been proposals from Ofgem to cap BSUoS rates over the winter period.
Organisations that have low Available Capacity and do not operate Triad avoidance may see a reduction in their Distribution and Transmission costs as a result of the changes. Organisations that do not have an ASC, and so are charged an all-inclusive unit rate will not see any direct change until their electricity contract renewal.
Large organisations that are utilising Triad avoidance such as load shifting or operating on-site generation during Triad periods, will be most impacted as under the new scheme they will no longer be able to reduce their costs through these measures.
We recommend for organisations that come under this criteria to explore their options to reduce their exposure to the increased charges by reviewing their Available Capacity ahead of the introduction of the TNUoS changes.
It is important for businesses to understand that the Transmission Charge changes will not be transparent on bills. Although many organisations will see their DUoS charges reduced, the TNUoS charges may go into their standing bill, increasing its cost. To find out which band an organisation is in, and the breakdown of the cost, we suggest they contact their supplier.
How TEAM can help
To help mitigate the impact of the new charges, organisations should look to review their Available Supply Capacity. By adjusting your ASC, you may move into a lower charging band and so reduce the cost to your business as a result of the reforms. Organisations that do not have their Available Supply Capacity optimised in-line with their ongoing operations may find that they pay significantly more than they do now for both distribution and transmissions costs in the new fixed charging regime. Learn more about our Available Supply Capacity optimisation service.
Alternatively, our Energy Consultants can work with you to understand how the new Targeted Charging Review changes will effect your organisation and make recommendations to reduce your costs.
Read more about Ofgem’s Targeted Charging Review (TCR).
Speak to a Consultant
Call 01908 690018 to learn more on what the TCR changes mean for you