Why many large business could be paying more for their electricity
Targeted Charging Review - TCR
Ofgem, the energy regulator seeks to delay the implementation of TCR. What does this mean for customers and how much they will pay for their electricity.
What is TCR and is it real?
Yes – On the 18th December 2019, OFGEM published its decision on the Targeted Charging Review (TCR), which looks at how some costs of the electricity networks are recovered.
As the UK moves to a smarter, lower carbon and increasingly decentralised energy system, we have seen large changes in the way electricity is generated, transported and used.
More businesses are generating their own electricity, using battery storage, reducing consumption and take less electricity from the national grid. This results in paying less for maintaining, operating and developing the national grid, despite being able to draw on the energy as and when required. The cost they avoid falls onto those who are not able to take similar action and an ever-decreasing group of users.
As this change accelerates, the situation will become worse, which is why OFGEM are taking action.
No longer will charges be based on how much energy you take from the national network but how much capacity you may need – i.e. the maximum consumption you may take in any one given half hour.
How Transmission costs are currently calculated?
The cost of using the National Grid (TNUoS) to transmit electricity has traditionally been calculated using the 3 highest half hourly winter peak periods (Triad) of consumption. Costs are now confirmed until April 2022 with the 3 triad periods for 2020/21 being:
- Monday 7 December 2020 – 5pm-5.30pm
- Thursday 7 January 2021 – 5.30pm-6pm
- Wednesday 10 February 2021 – 6pm-6.30pm
How is TCR changing this?
TNUoS will switch from a consumption based residual charge calculated using the 3 half hourly Trial periods, to a fixed residual charge.
The new costs will be based on a banding system which depends on:
- Voltage type (where you connect to the network). The majority of SME consumers will be Low Voltage
- Measurement class (Half-Hourly / Non-Half-Hourly)
- Agreed supply capacity
The higher the band, the higher the cost. This means customers who have high voltage, half hourly metering and a large agreed supply capacity will pay significantly more, especially those businesses that actively load shift to avoid the Triad periods.
It is also worth noting that the general advise from Ofgem is that all businesses can expect some level of increase with domestic households paying less.
In addition Distribution costs (DUoS), the cost of getting electricity from the National Grid to your business, will also move to a fixed charge rather than p/kWh based on the above criteria
When is TCR going to implemented?
Good question.
The distribution (DUoS) change will be implemented to the network residual charges in April 2022.
TNUoS changes were set to come into force in April 2022, but Ofgem has recently written an open letter in which they propose delaying the implementation until April 2023.
Because of the local election, Ofgem cannot launch a consultation on the delayed implementation until after the 6th May. We expect that this consultation will receive widespread support from stakeholders across the industry.
What can you do to get ready for TCR?
- As the Triad system is still in operation this winter you can continue to load shift. (i.e. move consumption from the forecasted high consuming half hourly slots to other periods of the day).
- Review your agreed supply capacity as this will have a big impact on the pricing band you are placed in. Many businesses have a higher capacity than is required, especially if their demand has changed.
Please note – your agreed supply capacity can only be changed once a year. The Distribution Network Operators (DNO’s) can reject requests to uplift it again, if it has a knock-on impact to suppliers and consumers in your area.
In summary
It’s a difficult time for customers as they grapple with the uncertainty of TCR and the impacts of COVID-19.
Suppliers are dealing with TCR in 2 main ways:
- Those who will pass through the increased charges when costs are known and published.
- Those who forecast the costs and build them into their prices. Most are still forecasting increases from April 2022, despite the proposed delay of implementation).
Because of this, it makes it difficult to compare offers from suppliers and know what is included/excluded.
If you need advice regarding these changes, please contact us on 01858 433539 or use the form below:
You can find more useful information at Targeted Charging Review: Significant Code Review | Ofgem
EDF also do a very good job explaining TCR on their website Ofgem’s Targeted Charging Review – what you need to know | EDF (edfenergy.com)