News / The Targeted Charging Review and how it affects your business: Part 2 - the final decision

The Targeted Charging Review and how it affects your business: Part 2 - the final decision

6th December 2019

Following our recent post about the Targeted Charging Review, the Office of Gas and Electricity Markets (Ofgem) has now reached a conclusion. So, what will it mean for your business?

In September 2019, we covered Ofgem’s Targeted Charging Review (TCR). This is the energy regulator’s investigation into ’residual’ network charges and ‘embedded benefits’.

Residual charges are levied to claw back any remaining monies not recovered through cost reflective charges. They make sure that network companies have sufficient funds to build and maintain the infrastructure. Embedded benefits relate to the differences in charges faced by larger and smaller generators. The former are connected to the transmission network, the latter (also known as ‘embedded generators’ or ‘distributed generators’) to the distribution network. The smaller embedded generators gain more preferential arrangements.

The purpose of the TCR was to make sure that all network users pay their fair share of the costs. Currently, some users are able to avoid these charges, while others can’t.

The way electricity is generated, transported and used is changing. As the UK strives to decarbonise, there’s more ‘distributed’ electricity generation –particularly from solar panels and wind turbines – including on customers’ own premises. Network charges must evolve, both to reflect this changing landscape and to make sure that costs aren’t falling unreasonably on those who are vulnerable or unable to avoid them.

Ofgem’s intent is to encourage “developers to respond to signals that reflect the economic reality, not the peculiarities of the regulations”. In other words, the regulator wants to create a more level playing field for generators and consumers of all sizes, whether distributed or transmission connected.

The decision – and what it means for your business

Now, Ofgem has reached its decision on the TCR. Changes to Transmission Network Use of System (TNUoS) charges will apply from April 2021. Changes to Distribution Use of System (DUoS) charges will come into force from April 2022.

While we await the precise details, we know that businesses will pay a banded fixed charge determined by the voltage level at which they’re connected. These residual charges will no longer be avoidable.

Ofgem is confident that these changes will lead to lower costs for customers. However, some industry watchers have reported concerns that the changes will deter further investment in renewable generation. This is where Ofgem’s other piece of work, the Access and Forward-Looking Charging Review, comes in. It’s looking at those charges that will encourage flexibility and influence user behaviour. The objective is “ensuring that electricity networks are used efficiently and flexibly.” In addition, the networks should be “reflecting users’ needs and allowing consumers to benefit from new technologies and services while avoiding unnecessary costs on energy bills in general.”

So, any business contemplating generating its own electricity should now consider the implications arising from the TCR decision.

Find out how Haven Power can help your business prepare for these changes by using our contact form.

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