Business electricity consumption only makes up around 40% of an energy bill. The other 60% consists of third-party costs (TPCs). Some of the costs, like the Renewable Obligation, are government subsidies which support renewable energy generation. Much of the costs, however, are network charges. Network charges allow the network operators to recoup the costs associated with the operation and maintenance of the infrastructure that helps to power businesses throughout the UK.
Part of the continuing work to create a more equitable energy network, the industry regulator Ofgem (Office for Gas and Electricity Markets) began the Targeted Charging Review (TCR) in 2017. It was developed to eliminate distortion across the network by ensuring that network charges are more indicative of actual usage across the country. The current structure can create unfair cost burdens on some businesses.
The TCR’s recommendations are to be deployed within the next 12 months to bring accountability to all users throughout the network. Despite the effects of COVID-19, the changes are still scheduled to come into force within a year, allowing a small window of opportunity for businesses preparing for these new non-commodity charges.
The latest developments
The TCR has established several changes including the following:
• The cancellation of the Transmission Generation Residual embedded benefit
• A change to the calculation of the Balancing Services Use of System (BSUoS) charge
• The introduction of changed Distribution Use of Service (DUoS) and Transmission Network Use of System (TNUoS) charges, banded by voltage level
Other major modifications are also expected in 2021 and 2022 which will allow for reforms to both the Distribution Demand Residual charges and the Transmission Demand Residual charges. These modifications are tailored to help the energy network adapt to a rapidly changing energy generation landscape.
Why have changes been made?
As things stand, the current system is unstable. Some network users pay more for distribution charges despite using less energy overall, and some users pay less for their distribution charges despite being high-energy consumers. In order to recover the necessary network maintenance costs, Ofgem has introduced these measures because it wants all users of the grid to pay fairly towards the upkeep and maintenance of the grid and expects that this new approach to charging will result in more parity within system, with a projected £5bn consumer savings by 2040.
The costs of the TCR
For business meters with no agreed supply capacity (kVA) – or non-half-hourly supplies, fixed charges will be set based on net volumes of consumption. For half-hourly meters, charges will be determined based on the agreed supply capacity and voltage level. Energy-intensive businesses with high baseloads and high voltage connections that do not currently have any Triad-avoidance measures in place can expect to see some savings.
In other cases, it is now more beneficial than ever to explore reductions in agreed capacity levels, or even voltage re-classifications. The largest impact will be on those businesses with high consumption and high voltage connections that are already employing the use of Triad-avoidance measures – such as switching to on-site generation or reducing their loads. Under the new fixed-charging system, this will no longer provide the same cost reductions as before.
It is now more beneficial than ever to explore reductions in agreed capacity levels
It is now more beneficial than ever to explore reductions in agreed capacity levelsWhen will these changes come into effect?
The implementation of Ofgem’s review will occur in stages. Firstly, in April 2022, the fixed transmission charges will go live. In late 2022, the distribution cost changes will take effect. Consequently, all businesses can expect to incur additional fees within the next 12 to 18 months.
How will the TCR affect me?
Businesses should be factoring new non-commodity costs into their energy bills, especially on a flexible energy tariff. It’s also possible that businesses on a fixed term contract can expect some price certainty due to the continuing work between suppliers and industry bodies, allowing suppliers to create pricing strategies in advance of these changes. Despite the unforeseen delays caused by COVID-19, the recommendations of the TCR are still moving forward, with some delays to the DUoS and TNUoS which will apply from April 2022.
The ultimate goal of the TCR is to ensure that charges are more fairly distributed across network users. Though there will definitely be changes to charging, the cost impact may not be significant, depending on your business energy requirements.
Businesses should be factoring new non-commodity costs into their energy bills
Businesses should be factoring new non-commodity costs into their energy billsWhat can I do to limit the impact on my business?
The changes caused by the TCR means that reducing overall consumption will be the only real way to reduce costs. Businesses now must look at ways of reducing energy consumption whilst sustaining their operations.
Simple steps such as implementing Energy Management Software or arranging bespoke energy contracts based on your actual consumption can help you make savings despite these additional charges.
Get in touch with Northern Gas and Power to speak to our energy experts who will be able to give you detailed feedback on your energy output, as well as guidance on your energy management going forward. Our agents will be able to give you kVA analysis to ensure you have the correct supply capacity. For larger clients, our analysis could result in tens of thousands in savings.
Whatever the size of your business, the Targeted Charging Review will affect you. To understand the TCR and its future impact, Northern Gas and Power customers can contact their Account Manager.
Prepare your business now. Speak to our experts today.
Call Northern Gas and Power today on +44 (0)3 300 300 800