Our Senior Commercial Manager Alice Gunn explains how Ofgem’s review will affect network charges and electricity bills.
Some of our customers have been asking if and how the Targeted Charging Review will impact on bills, so let me give you a rundown of what’s happening.
More than half of an electricity bill is made up of non-commodity costs. These include charges to operate and maintain the network infrastructure.
To share these costs fairly among all network users, Ofgem, the energy industry regulator, launched its Targeted Charging Review (TCR) in 2017. TCR is Ofgem’s review of network charges – it’s not a new charge.
One outcome of this review is changes to “use of system” charges, which our non-half-hourly and half-hourly electricity pricing will reflect as of 11 May 2021. This will affect some users more than others.
TNUoS and DUoS charges are made up of the residual cost, which covers the operation and maintenance of the network, and the locational or forward-looking cost, which covers the costs to expand the network.
Until now, due to how they were charged, users could reduce their contribution to both these costs by avoiding using power at peak times. Under the TCR changes, these costs are being charged in different ways.
The forward-looking element will remain a consumption-based charge, whereas the residual charge is moving to a fixed charge to ensure that similarly sized users all contribute fairly. For TNUoS this equates to around 90% of the charge, and for DUoS around 50%, but this varies by region.
For DUoS, this means reallocating some of the cost from the unit rate to the standing charge. The existing Red, Amber and Green (RAG) time of day charges will still exist for the proportion that remains in the unit rate.
For TNUoS, this means the unit rate and the Triad element will be reduced and a new standing charge component will be created. Triads will still exist, albeit significantly reduced.
Previously, TNUoS charges for the whole year were based on each consumer’s average electricity consumption during the winter’s three half-hour, high demand Triad periods, so it has been well worth minimising usage during those times. Large businesses with highly developed Triad avoidance strategies are likely to see higher costs under the new charging structure.
DUoS changes are due to come into effect from April 2022. Ofgem has recently announced that TNUoS changes are likely to be delayed until April 2023.
As of 11 May 2021, our quotes will reflect the DUoS and TNUoS changes.
You’ll notice higher standing charges and lower unit rates on our quotes than previously. These prices reflect the band that each site has been allocated by the Electricity System Operator (National Grid ESO).
For contracts that span the period before and after implementation of these TCR changes, quotes will be based on the old charging methodology until 31 March 2022 for DUOS and until 31 March 2023 for TNUOS, then the new charging methodology thereafter.
This includes our matrix prices for energy brokers.
TNUoS and DUoS standing charges will be set based on a site’s band. These bands vary based on voltage, capacity and consumption. Each meter point number (MPAN) falls into a Line Loss Factor Class which identifies the band.
As “banding agent”, the ESO allocates each site to a band based on the past two years’ data, provided by the regional and independent Distribution Network Operators DNO/IDNO.
A site’s band is set for the whole of the transmission price control period. The current bands have been set up to 31 March 2026. They will not change in this period if businesses alter electricity usage, reduce available capacity (KVA) or cut annual consumption.
There are exceptions to this: where a site changes voltage, has a change of use which leads to a significant change in maximum capacity or annual consumption, or moves from being charged on a capacity basis to a consumption basis or vice-versa.
You can dispute your banding if you believe incorrect data has been used, by raising it with your DNO/IDNO.
Changes to network access and forward-looking charges are still under review by Ofgem. These could come into effect as early as April 2023.
TCR is considering making Triad windows longer, and Triad rates that vary for summer and winter.
The location element of DUoS is also under review, which could result in different regions having differing costs.
In addition, a review of Balancing Service Use of System (BSUoS) charges is underway. These recover the cost of day-to-day operation and balancing of the transmission system. This review could result in BSUoS being charged on wholly final demand which would increase the cost. Charging could remain volume-based or become fixed per site like other TCR changes.
Our SSE Protect contract guards businesses against changes to existing levies, including structural changes. It doesn’t cover the introduction of new levies. TCR is changing the way TNUoS and DUoS are recovered, but not bringing in new charges – SSE Protect shields customers from increases of this nature.
Our SSE Choice prices are based on our forecast of non-commodity costs, and we reserve the right to pass on any increase in these. Prices will now reflect the TCR TNUoS and DUoS changes, so new contracts and renewals from 11 May 2021 won’t be subject to any increase related to these changes.
To discuss how we can help with your energy strategy, please get in touch with your account manager or contact us.