Ofgem’s Targeted Charging Review: Delayed, But Here to Stay
The Targeted Charging Review (TCR) plans to modernise the UK’s electricity networks and improve the management of the National Grid.
Changes to the way in which Distribution and Transmission charges are allocated should save consumers up to £5bn until 2040.
Although the forecasted cost savings are ambitious, the changes have been controversial. In some cases, new Transmission charges may see thousands added to business’ electricity bills. The renewable sector has also argued that the reforms present challenges to the future of sustainable energy deployment, including solar and wind power.
In April, Ofgem announced news of a consultation with a view to delay the introduction of Transmission charge reforms. The new proposal could see the Transmission charge reforms delayed until April 2023. However, changes to the Distribution charges will still be effective from April 2022.
The expected delay in Transmission charges will be welcome for many businesses. For organisations which haven’t already, it provides additional time to consider the impact of Ofgem’s initiative. Many businesses that haven’t taken steps to mitigate cost rises will see their electricity bills increase. To prevent this, it’s essential to implement measures such as kVA analysis, power factor correction and energy management solutions, as this will be the only real way to reduce energy costs.
A Necessary Change
The changes proposed in the TCR have been divisive in industry, though it’s recognised as a necessary reform. As a net-zero future moves ever closer, many businesses across all sectors are looking to change their energy behaviour. The most common changes are an implementation of energy management technologies and a migration away from fossil fuel-dependent energy generation.
Many companies are implementing energy management and monitoring solutions such as ClearVUE. PRO, which can offer real-time analytics of energy use, identify energy waste, and even features a live cost parameter to help reduce cost, consumption, and carbon.
A net-zero future will need to be an economically efficient system that can cater to the demands of a dynamic energy landscape. The UK government has already pledged substantial investment towards net-zero and the network infrastructure. This will ultimately help businesses reduce carbon emissions, earn savings, and develop a technological infrastructure that allows businesses to optimise their energy consumption. A grid which utilises clean technology and software will be the only way to support the delivery of a net-zero future. With a net-zero future in mind, the changes in the TCR are essential.
The TCR is radically changing the way that Triad/TNUoS charges are levied on customers. The proposal seeks to move away from charging customers based on peak consumption during winter and instead move to a fixed charge based on voltage class and import capacity.
The TCR changes mean that energy-intensive organisations will no longer be able to employ demand reduction tactics such as load shifting or onsite generation. The only way to mitigate high consumption costs will be to reduce energy consumption or optimise energy efficiency.
Triad avoidance is one of the key drivers behind the TCR, even though Triad avoidance arguably helps prevent surges in periods of peak demand. When Triad avoidance measures are prevented, it will lead to more spikes in energy demand, which in turn could lead to tight margins and instability when demand is high. It’s vital, therefore, for the most energy-intensive businesses to monitor and optimise their energy.
Don’t Delay Action
For businesses concerned about the impact of the TCR, it’s important to know that the charges are essentially based on your Available Supply Capacity (ASC), which is measured in Kilo Volt Amperes (kVA). It’s commonly known to businesses as kVA Capacity.
Your kVA capacity is the amount of electricity that the Distribution Network Operator (DNO) is required to make available for your site. It is the maximum electricity you can draw from the grid at any one moment.
For less energy-intensive businesses with lower kVA Capacities, there may be a reduction in Distribution and Transmission charges because of the TCR.
However, the larger, energy-intensive companies which operate Triad avoidance will be impacted by the TCR as they will no longer be able to reduce costs through previous methods.
For larger businesses affected by the upcoming changes, it’s essential to consider solutions to mitigate or offset the costs or alter budgets to ensure you remain prepared for these new network charges.
The easiest method of mitigating the impact of the TCR changes, starting with Distribution charge reforms in April 2022, is to review your kVA capacity is optimised for your energy demands.
Many larger businesses only review their kVA capacity intermittently. Doing so does not account for current changes to operations or fluctuations in demand caused by increased or reduced infrastructure or onsite power generation.
Optimising your kVA capacity ensures that you are allocated correct Distribution and Transmission charges. It may lead to cost savings if your businesses can move into a lower charging band through decreasing your capacity.
With the first wave of Transmission charges being introduced in April 2022, it may be tempting to wait for the Transmission rates to be published before acting. However, this means you could lose out on current savings to your energy profile if your capacity is not optimised.
We recommend that organisations quicken their plans to optimise their kVA capacity well ahead of April 2022.
To further understand how the Targeting Charging Review will affect your business, speak to our Energy Consultants at Northern Gas and Power.
Rasheed Ahmed, 2 June 2021.