News / The Targeted Charging Review and how it affects your business

The Targeted Charging Review and how it affects your business

19th September 2019

The UK is looking to decarbonise electricity generation and increase the electrification of heat and transportation, to give just two sector examples, and thereby reduce carbon emissions. These activities mean that maintaining and developing the electricity networks in Great Britain has never been more important. As demand for electricity and the use of networks continue to grow, how can the industry make sure that all network users pay their fair share of the associated costs? That’s what the Targeted Charging Review (TCR) aims to find out.

In previous posts, we’ve covered the make-up of your business electricity bill. Typically, the charges for the electricity you’ve used accounts for around 40% of the total. The other 60% is made up of third party costs (TPCs), which include the costs of using the electricity networks. In August 2017, the industry regulator – the Office of Gas and Electricity Markets (Ofgem) – launched the TCR because it wanted to address several concerns about the existing framework. Firstly, that the framework produces inefficient outcomes by incentivising customers to avoid network charges. Secondly, that over time, some consumers – particularly vulnerable ones – could be exposed to a disproportionate level of network costs.

The TCR is focusing on the network’s residual charges, which aren’t attributable to specific sites or locations. Ofgem is also examining locational and forward-looking charges through a separate Access and Forward-Looking Charging Significant Code Review.

The need for change

Without intervention, the costs of maintaining and expanding electricity networks could fall disproportionately on the most vulnerable in society. By tackling the residual cost recovery element of network costs through the TCR, Ofgem is trying to make sure that the charging arrangements are fair for all consumers.

Separately, through the Access and Forward Charging reform, a new framework of sharper and more focused charges should deliver benefits. These include encouraging flexibility and making sure that networks are both used more efficiently and optimise the use of the connected assets. For instance, networks could defer network investment by entering into commercial contracts with distributed generators and demand-side response providers.

The TCR, which should report by the end of November 2019, will affect the allocation of residual charges. We anticipate that the following will change:

  1. Transmission Network Use of System charges (TNUoS) – for residual charges, we expect a banded allocation and a fixed charge to all customers who use electricity
  2. Distribution Use of System charges (DUoS) – for residual charges, we expect a banded allocation and a fixed charge to all customers who use electricity
  3. Embedded benefits – we believe reductions are likely

Find out how Haven Power can help your business prepare for these changes, and take advantage of opportunities arising from future reforms, by using our contact form.

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