Targeted Charging Review: Ofgem’s reform of electricity network charges

Ofgem has decided on a far-reaching review of how electricity network charges are levied to end users called the Targeted Charging Review (or TCR for short), which is set to come into force from 1st April 2022. These changes affect distribution charges, which pay for the local electricity grid, as well as for the national infrastructure commonly known as the National Grid.

These changes are still being processed by the network operators, as well as suppliers and full detail of how it will affect individual customers are not yet available; as always however with regulatory reform, there are likely to be both winners and losers as a result.

What is the TCR?

As the energy regulator, Ofgem’s remit is to make charging for the electricity system fair for all users. Having become concerned about price distortions, caused by end users managing their energy usage away from peak periods, Ofgem has decided to reform how charges are levied to make them fairer for all businesses. The aim is to make sure all like businesses share an equal cost of maintaining and operating the network.

How are charges changing?

Transmission charges (currently also known as Triads):

Use of the National Grid will largely become a fixed charge with effect from 1st April 2022, so charges will be built into each site’s Standing Charges (see explanation below as to how this will work). In a few areas in southern Britain the current pricing methodology of a price per kW of demand (over three periods called Triads) will be retained, although this element will be much reduced. In northern regions however this element will disappear completely.

For customers on flexible or Pass through Contracts – those contracts that see these charges itemised on energy invoices – this change will much reduce, or entirely eliminate any benefit from “Triad avoidance” or managing usage during the peak weekday hours in the winter. Clients that have effectively managed their Triads are likely to see cost increases under the new system, whilst others will see cost reductions. As more details become clear this summer, it will be possible to look at the calculations for individual sites to see the impact of the changes.

The impact on traditional fixed price contracts is being assessed by suppliers, with each set to take a view on passing these changes through or not.

Distribution charges:

The new system will maintain the current structure of distribution charges. For clients on flexible or Pass through Contracts, the familiar Red, Amber, Green charging structure will remain, alongside the charges for Authorise Supply Capacity and Standing Charge. The only change therefore will be that more of the overall cost is levied through the Standing Charge, dependant on the methodology in the following section. Again the impact on fixed price contracts already signed and straddling the April 2022 start date is being assessed by suppliers, with more information set to be released during the course of this summer.

How are Standing Charges to be set?

To make sure all similar clients receive the same charges, clients are being grouped into bandings by the network operators, based on either;

• Annual consumption (for non-half hourly metered sites) or
• A combination of the connection capacity and supply voltage (for half hourly metered sites).

For each voltage there are 4 bandings. Details are available from  your allocated Consultant at Consultus International or call 0330 221 1000.page2image59657504

Can I change my banding?

If you feel you have been incorrectly allocated to a band, there is an appeals process through the Distribution Network Operator (DNO) that operates to local network. Suppliers are not responsible for the banding of users and will base costs on the banding identified by the DNO.

What’s next? When will I know more?

Exact implications on a customer by customer basis are not yet known; this is because the industry is still allocating end users to their bandings and passing this information through to suppliers. We are working with suppliers to obtain this information as soon as it is available, and any changes will be communicated accordingly.

Further information can also be found on the National Grid website (www.nationalgrid.com) or from Ofgem (www.ofgem. gov.uk).

It is expected that all information will be available and integrated into industry systems by the end of summer 2021.

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