The Targeted Charging Review and how it affects your business
19th September 2019
The UK is looking to increase the electrification of power generation and transportation, to give just two sector examples, and thereby reduce carbon emissions. These activities mean that maintaining and developing the grid in Great Britain has never been more important. However, as the number of electricity generators rises and they become more localised, how can the industry ensure that they all pay their fair share of the associated costs? That’s what the Targeted Charging Review 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 network. In August 2017, the industry regulator – the Office of Gas and Electricity Markets (Ofgem) – launched the Targeted Charging Review (TCR). It wanted to address concerns that the existing framework for these network charges was leading to “inefficient use”.
According to industry commentators The Energyst, Ofgem is trying to ensure that the way consumers are charged for using the grid reflects the costs incurred by their actions.
Electricity distribution is changing
For years, power stations have produced most of the country’s electricity for use across the UK – with the majority of locations a long distance from the source. For this reason, it’s made sense for all generators to pay a share of the cost of building and maintaining the network that takes their power to customers.
Until recently, these costs were simply accepted as an overhead that couldn’t be avoided. However, power’s now being produced in different ways (and in different places) as the system makes rapid changes and focuses on decarbonisation. Much more electricity is being generated locally – from renewables such as solar photovoltaic (PV) panels and wind turbines – meaning that less of our baseload power now comes from centralised power stations.
Initially, the industry thought that local customers would use this power – often those located at, or near to, the site of the generator(s). However, there was no expectation that these so-called ‘distributed generators’ would be using the electricity network in the same way as the larger, more distant power stations.
And yet, this is what’s happening. Ofgem acknowledges that distributed generators are exploiting loopholes in the current arrangements. This explains why it wants to force “developers to respond to signals that reflect the economic reality, not the peculiarities of the regulations”.
The need for change
Clearly, our current position and the changes required for the future mean there’s an urgent need for review.
The TCR will consider two areas. The first looks at ‘residual charges’ – the way generators pay for the costs of the network today. The second area covers ‘forward-looking charges’ – how generators should pay for the work needed to create the grid of tomorrow. It will also consider costs affected by:
Distribution Use of System (DUoS) charges. This could see the introduction of a banded system, to persuade customers to move their electricity usage to off-peak periods, with price reductions as an incentive.
To find out how Haven Power can help your business prepare to meet these changes, please get in touch using our contact form.Contact us
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