Welcome to our Targeted Charging Review (TCR) & Non-Commodity blog where we'll be looking at the impact of TCR, the next round of changes implemented this month, and the impact on customers.
In 2019, Ofgem published its much-anticipated Targeted Charging Review which looked at the way in which transmission (TNUoS) and distribution (DUoS) costs of the electricity network were recovered.
The aim: Reform network charging for a rapidly changing energy system. Ensure costs are shared out fairly and proportionally, while removing any distortions and undue cost that the current methodologies provided.
Yet, it wasn't without controversy and questions were raised as to its potential damage to renewable generation and flexible technologies, and its lack of focus on decarbonisation.
So, 4 years on as TCR comes back into the spotlight with the implementation of the new Fixed (£/day) Transmission (TNUoS) Charges this April, and with Distribution TCR charging already introduced in April 2022, will we now see the full impact of TCR come into play? Who will be the winners and losers with this next round of changes.
Nick Tyson, Industry Forecast Manager here at TotalEnergies shares his insights on this:
The half-way stage
"To get the full picture, it's important to know that with the implementation of the TCR, we are at a half-way stage, and in some ways in limbo. The full reform includes the Settlement Code Review (SCR) and this is due to be introduced sometime in 2025 at the earliest. This is the part that will potentially redesign elements of the charging to drive efficient behaviours and signals, giving end users the opportunity to provide flexibility and potentially lower bills.
An example of this current limbo in charging is the half hourly TNUoS Triad charges. As of April 2023, half of the regions have no charge at all, and the remaining are greatly reduced to around 0% to 10% of what they were.
The implementation of the new TCR network standing charges is a bold but necessary redistribution of costs in the collection of network revenue. The benefits include reliable collection, and the removal of distortions such as overly generous embedded benefits and fairer sharing costs for users that are exposed to unavoidable peak charging costs.
Winners and losers
However, with any zero sum change in a complex system there will be winners and loser and my concern is that the new costs will be felt hardest for large users on the upper boundaries of the charges, especially if they were already well adapted to the current charging regime and incentives.
These unintended consequences could include further government intervention, similar to what we've seen for Energy Intensive Industries exemptions (EII).
Rightly or wrongly depending on your perspective the changes also leave fewer incentives for embedded generation and remove existing benefits such as BSUoS and much lower Triad payments.
With the recent and unforeseen impact of high inflation on network revenues, it's now even more likely that all consumers will notice and feel the impact of these high standing charges on their bill.
The networks are permitted by Ofgem to increase their allowed collectable revenues in line with inflation and this extra revenue cost will fall directly into the TCR 'top up' residual standing charges increasing the rates significantly. This is already producing much higher charges for the 2023 Transmission charges and the recently published 2024 Distribution charges".
Supporting our customers
With these latest changes, it's likely that you'll notice a significant change in the way your energy costs are presented and collected via your bill, especially regarding your fixed daily standing charges.
To help support customers with this, we've set out how these changes will affect Pass-through Non-commodity billing and what you can expect your April consumption invoice to look like. For further details on this, TCR's impact on your Standing Charges, and the Tranmission Charge implementation please click here.
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