Launched back in August 2017, Ofgem created the Targeted Charging Review (TCR) as part of its ongoing efforts to create a fairer electricity network. Aiming to reduce confusion across the network, the TCR ensures that network charges are cost-reflective and paid by the relevant parties, undoing the unfair costs placed on certain networks as a result of current charging structures.
The TCR has been shaped around three core questions;
Here, we'll outline what the recent TCR changes have brought into effect, as well as the changes that lie ahead in April 2021 and April 2022 respectively.
What has the TCR changed?
A far-reaching programme, with further changes set to take place well into 2022, the TCR has served to bring a degree of equitability to the network, allowing for fairer distribution of non-energy costs.
And despite the difficulties caused by COVID-19, the proposed changes are still expected to be put in place over the next 14 months. Therefore, it's crucial that businesses should start preparing for potential revised non-energy charges.
Right now, some users are able to change their operating processes in order to circumvent their transmission and distribution costs. Often, this is done by powering down during the peak times (known as load shifting) that are expected to be used as part of annual cost calculations.
One of Ofgem's responsibilities when setting charges is to provide a degree of safety to both current and future consumers. As a result, Ofgem feels the existing approach, as well as its charging structure, to be an increasingly inequitable one. The TCR is therefore intended to address this by ensuring that costs are fairly distributed across all network users.
What is set to change?
The main changes set to come into effect as part of the Targeted Charging Review are as follows:
HH - The voltage of connection and measure of size based on the agreed capacity for larger consumers.
NHH - Net consumption volume for smaller consumers without agreed capacities.
What do customers need to do?
Businesses aren't required to do anything for the time being. That said, all non-domestic consumers will be allocated to one of several charging bands in order to determine the charging thresholds.
Suppliers will also adjust their billing systems to cater for the new billing methodologies, implementing new tariffs to account for new charges. Additionally, some suppliers are already taking steps that might benefit customers, such as giving them the option to exclude BSUoS from the fixed contract energy price.
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What does this mean for customers?
For customers who reduce their consumption at peak times, the upcoming changes will no longer help with avoiding paying the fixed DUoS and TNUoS charges. Additionally, for any customers at the low end of their newly-allocated charging band, they will likely pay a larger proportion in fixed charges – relative to their total bill – when compared to a high consumer in your segment.
For customers who are high consumers compared to their charging band's average, they will pay a smaller proportion in fixed charges when compared to low consumers in their allocated segment.
Businesses should factor the change in costs into their energy bills, particularly if they're on a flexible energy contract. Those on a fixed contract should expect a degree of price certainty, as suppliers are continuing to work closely with industry bodies, factoring in this information to their pricing strategies as they receive it.
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