Major Changes Ahead – Targeted Charging Review (TCR)

The Background

Transmission and Distribution charges are the costs for transporting energy from the point of generation across the national grid and subsequently from the grid to the end-users: homes and businesses. This is done over the transmission and distribution networks respectively and the costs make up over 60% of the total charges that appear on customers’ electricity invoices.

The evolution of the electricity system has resulted in generation and use of electricity in different; sometimes unexpected ways. The increasing number of homes and businesses with their own generation and electricity storage, add further complexity to the system. Ofgem proposes that the current charging methods do not accurately reflect the costs of building, maintaining and operating it.

This ever-evolving transformation has also made predictability and management of the networks more difficult at a time when the UK aims to reform the industry as part of their contribution to the Net Zero initiative.

With all of the aforementioned concerns, Ofgem originally launched the TCR back in August 2017 and proceeded to investigate potential solutions and changes that would be required. Ofgem came to a final decision in November 2019 with a plan for how these changes will be implemented.

Why the change?

“The costs of maintaining the electricity grid will be spread more fairly and consumers will save £300m per year from 2021, with £4bn-£5bn consumer savings in total over the period to 2040.”

Currently, some users are able to change their operating processes in order to potentially avoid some of their transmission and distribution costs. This is often achieved by powering down during peak times that are expected to be used as part of annual cost calculations.

One of Ofgem’s responsibilities when setting charges is to safeguard current and future consumers. As such, Ofgem considered the existing approach and charging structure to be increasingly problematic. The TCR consultation was therefore intended to address this by ensuring that costs are fairly distributed across all network users.

What is Changing?

The main changes are as follows:

1. From April 2021, the Balancing Services Use of System (BSUoS) will be charged on gross demand (previously net demand) and will also see the removal of the embedded benefit for a small generation. Ofgem expects that this will ultimately result in long-term savings for customers.

2. From April 2022, the Transmission Network Use of System (TNUoS) residual will be charged as a fixed (£/day) cost for all demand customers instead of the current billing method of (£/MW) for Half Hourly (HH) metered usage and (p/kWh) for peak consumption (~4pm-7pm) for Non-half-hourly (NHH) metered usage.

3. From April 2022, the Distribution Use of System (DUOS) residual will be charged as a fixed (£/day) method, instead of the current (p/kWh) method. Charges will depend on:

HH – The voltage of connection and measure of size based on the agreed capacity for larger consumers.

NHH – Net consumption volume for smaller consumers without agreed capacities.

What happens next?

  • All non-domestic consumers will be allocated to one of several *charging bands that will determine the charging thresholds.
  • Suppliers will adjust their billing systems to cater for the new billing methodologies and implement new tariffs to account for new charges.
  • Some suppliers are already taking steps that might benefit customers: E.g. The option of excluding BSUoS from the fixed contract energy price

What does this mean for customers?

  • If you are reducing your consumption at peak times, this will no longer help with avoiding paying the fixed DUoS and TNUoS charges. 
  • If you are at the low end of your newly allocated charging band, you will likely pay a larger proportion in fixed charges, relative to your total bill, when compared to a high consumer in your segment.
  • If you are a high consumer, compared to your charging band’s average, you will pay a smaller proportion in fixed charges when compared to a low consumer in your segment.

Summary / Conclusion

Ofgem is taking action to address concerns over the way that the current network charging method benefits some customers, while others are left to pay the balance. It also aims to ensure that costs are covered for the future network developments that are expected in order to reach its overall goals.

If you are a customer who benefits from reducing your consumption and power demand at peak times, you will no longer be able to avoid these charges as the new charging method will be a fixed charge per year.

The earliest date of implementation is from April 2021 when the BSUoS changes are implemented. Further changes to the TNUoS and DUoS charges will follow from April 2022.

*The DUoS charges should be published by the respective Distribution Network Operators (DNO’s) in their next annual charging statements, by year-end.

Please see the table below for The TNUoS charges that will be applied under TCR, starting in April 2022:

 TNUoS charges that will be applied under TCR, starting in April 2022

Please contact Pulse to find out how we can help to prepare you for TCR.  Talk to our experts