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. The changes to the Distribution charges will still be introduced from April 2022, meaning organisations affected by the oncoming changes should take action to mitigate the impact on their costs.
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.
When the Transmission reforms are introduced, around 90% of the charges will 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.
The date for the introduction of the Transmission charges is in consultation, though it is expected to be pushed back from April 2022 to April 2023. The rates have not yet been published.
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.
Ahead of the introduction of the Distribution charges in April 2022, 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.
While it is expected for many organisations that the Transmission charge changes will result in higher costs than the Distribution charges, it is still recommended to review your ASC now to start making savings. 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.