The Targeted Charging Review (TCR) was launched by energy regulator Ofgem in 2017, with the aim to reduce distortion across the energy network. In November 2019 Ofgem finalised a plan for how TCR changes will be implemented for electricity customers. This guide looks at how these changes will impact energy costs.
Background
Around 25% of a typical electricity bill is made up of Transmission Network Use of System (TNUoS) and Distribution Use of System (DUoS) charges. These charges cover the costs of maintaining the networks that transport energy from the point of generation across the National Grid, and subsequently from the grid to end users.
Known more commonly as transmission and distribution charges, these costs are split into two parts: residual, the cost of maintaining the network and forward-looking, the cost of expanding the network.
TCR changes only effect the residual element, which is 90% of TNUoS and 50% of DUoS.
The UK electricity system has evolved dramatically in the last 50 years, with an increasing number of consumers investing in their own electricity generation and storage solutions. This has made predictability and management of the system more difficult, and some users have been able to avoid TNUoS and DUoS charges, typically by powering down during peak times.
Ofgem’s TCR Review is intended to address this and ensure that costs are distributed fairly.
What’s changing?
Currently the residual charge is built into the unit rate (p/kWh). However, from April 2022 suppliers will charge a fixed amount per supply (£/day), which will be built into the standing charge. This should, in theory, ensure that similar sized supplies pay the same amount towards maintaining the network.
April 2021
Balancing Services Use of System (BSUoS) charges will be based on gross demand (previously net demand). This will also see the removal of the embedded benefit for a small generation.
April 2022
TNUoS and DUoS residual will be charged as a fixed cost for all electricity consumers. This means charges will be built into the standing charge (£/day) instead of the unit rate (p/kWh), as it is currently.
New TNUoS charges will be based on a series of fixed charging bands set for the whole country.
New DUoS charges will be based on a series of fixed charging bands set for each distribution area.
How will you be charged?
With the exception of unmetered supplies, all non-domestic supplies will be placed in one of several bands, depending on size, which will determine how much customers pay for TNUoS and DUoS costs.
Network Operators are creating new Line Loss Factor (LLF) classes to be implemented by October 2021, which will ascertain which charging band supplies fall under.
Supplies will remain in this band until 2026, unless there has been a material change onsite, i.e. more than 50% increase or decrease in annual consumption/maximum installed capacity.
Changes to Triads
Currently, residual and forward-looking costs are only charged during the Triad period. This is the highest winter peak period between November and February. No costs are charged between March and October, as they are deferred to the Triad period.
By reducing consumption or switching to onsite generation during the Triad period, some users have been able to avoid TNU0S and DUoS charges. Ofgem have therefore decided to remove Triads from April 2022 to address the issue.
The final Triad season will take place over winter 2021/22 and there will no longer be any incentive for Triad avoidance. Those who have been avoiding the winter peak periods are likely to see their electricity bills increase once the benefit ends.
What happens now?
To allow for the switchover, there will be a transition period between April 2022 and April 2023.
If your electricity contract starts in April 2022 (for a 12-month term), you probably won’t notice a dramatic change in your electricity charges.
However, any electricity contracts agreed between May 2021 and March 2022 will include both old winter charges (p/kWh) and new fixed charges (£/day).
This means the closer the contract start date is to October, the more customers are likely to see an increase in rates, particularly in the standing charge.
Most suppliers are building these costs into their quoting framework now, to avoid hitting customers with an additional charge in the future.
Low consuming supplies will likely pay a larger proportion in fixed charges, relative to the total bill, compared to high consuming supplies within the same charging band.
Comparably, higher consuming supplies will pay a smaller proportion in fixed charges, compared to the charging band’s average, compared to lower consuming supplies in the same bracket.
We will be closely monitoring TCR developments and announcements from Ofgem, to guide our clients through these changes. Should you have any queries or concerns, please do not hesitate to get in touch.