Ofgem’s Targeted Charging Review
Ofgem are revising the way in which consumers are charged for electricity network costs.
Back in November 2019, Ofgem announced its decision on the Targeted Charging Review (TCR) Significant Code Review (SCR), which looks at how some of the costs of the electricity networks are recovered.
Currently, a network charge rate consists of two parts; a signal or incentive element (Forward-Looking Charge) and a revenue collecting element (Residual Charge).
The TCR will change the way the Residual Charge is collected, separating it from the Forward-Looking Charge. This means that revenue is no longer providing a signal for people to avoid charges through behaviours such as load shifting or on-site and embedded generation. The change is designed to remove any unintended distortions and improve fairness in a practical and proportional way.
When does it happen?
This change will be implemented in stages:
April 2021: The demand base for the charge (BSUoS) - will change
April 2022: The distribution (DUoS) change will be implemented to the network residual charges
April 2023: Transmission Network Use of System (TNUoS) change implemented to the network residual charges. This has changed from the original implementation date of April 2021 to April 2022. Ofgem has recently announced that are now implementing the charges in April 2023.
What is changing?
Network Residual Charges
When implemented, customers will get a new fixed daily charge and a reduction in the pence per kilowatt hour charge they are billed as some costs move from volume based to daily rates.
The new daily rate will be for Transmission (TNUoS) and Distribution Charges (DUoS): Domestic customers will be allocated a single residual charge and non-domestic customers will be allocated a charge based on where they fall in the segmented charging bands. The band in which a consumer sits will be determined from a combination of the following criteria:
- Voltage type (where you connect to the network). The majority of SME consumers will be Low Voltage
- Measurement class (Half-Hourly / Non-Half-Hourly)
- Either average annual usage or the maximum import capacity. Most SME Consumers will be based on average annual usage.
Please note that exact bandings have not yet been agreed.
What does it mean for me?
Ofgem advise that the average domestic household will pay less, and non-domestic customers will pay more – in particular those that currently avoid charging due to load shifting or on-site generation. Those that do not have the ability to change their behaviour may see some reduction in costs.
Overall, Ofgem advise that consumers who may see cost increases in the short term will ultimately benefit from longer-term savings, compared to current charging methodology.