When it comes to network charges, the only certainty is change.
This is hardly surprising when the energy system is going through its biggest transformation since the introduction of nationwide electricity back in the early 1900s.
Having to adapt to a more diverse and decentralised generation mix with new low-carbon technologies, plus the growing demands that decarbonising our transport and heating networks will place on the grid, requires a huge upgrade to our energy infrastructure.
As a result Ofgem is reviewing both how the electricity networks operate and how charges to consumers are structured.
This could include amending existing charging structures – such as moving away from peak Triad charges, of which more below.
The timescales are ambitious – Ofgem is aiming to get these changes finalised by the second half of 2020, and for the majority to take effect from April 2022, with some to follow in April 2023.
Network access and behaviour-based charges under review
As well as the Targeted Charging Review looking at the larger residual element of key network charges that’s currently in play (see blog here), Ofgem is now turning its attention to forward-looking charges and network access.
To recap, network charges recover electricity transmission and distribution costs – for example, Transmission Network Use of System (TNUoS) charges for National Grid, and Distribution Use of System (DUoS) charges for local Distribution Network Operators.
These charges have two parts:
- A ‘forward-looking’ element that’s designed to signal to consumers how their behaviour impacts the cost of running the network in different locations.
- A larger ‘residual’ element that simply ensures the networks’ allowed revenues are recovered.
Easier access and clearer signals
Through the newly-proposed Reform of Access and Forward Looking Charges Reform, Ofgem is looking to make it easier for customers to connect to the system. And also to provide clearer charging signals to consumers on how their use of the system affects network costs.
For example, current ‘use of system’ charges don’t reflect when (peak vs off-peak), where (unconstrained vs constrained network) and how (e.g. the capacity) different types of consumption affect the need for network investment.
So these reforms will look at access rights – i.e. how much electricity consumers can import or export, when and for how long, where to/from, and how likely their access is to be interrupted and what happens if it is. And then how to structure charges for this.
Ofgem’s ultimate aim is to make sure the system is used more effectively, reducing the need for costly reinforcement and unnecessary costs to consumers.
Both TNUoS and DUoS charges likely to change
The Forward-Looking Charges Reform will include:
- A comprehensive review of Distribution Use of System (DUoS) charges.
- A review of the distribution connection charging boundary, which could exclude any network reinforcement charges from future connection costs.
- Focused improvements to Transmission Network Use of System (TNUoS) charges.
As part of the TNUoS review, Ofgem is inviting views on whether the current Triad model should continue – i.e. basing TNUoS charges on consumption during the three half hours of peak demand during the winter season.
Clearly, this will impact large consumers who load shift or use demand side response to limit costly TNUoS charges.
But Ofgem is keen to make charges fair to all consumers.
That said, it still wants to provide incentives for behaviour through forward-looking charges.
You can find out more here – including details of the consultation, which closes on 18 September, and access to a webinar recording about the consultation.
In the meantime, if you have any questions about how these changes may impact your business, contact your Client Lead (existing customers). And please register your interest in our upcoming webinar here.