Targeted Charging Review

Some of our customers have been asking how the proposed Ofgem review in relation to Targeted Charging Changes will impact on bills, so here’s 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 will impact both non-half-hourly and half hourly electricity pricing.

This will affect some users more than others. Distribution Use of System (DUoS) and Transmission Network Use of System (TNUoS) charges – what’s changing? 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.

To discuss how we can help with your energy strategy, please get in touch with your USAVE Representative who will be happy to discuss any questions that you may have in relation to the Targeted Charging Review.

Martin Hale

Compliance & Finance Director

This information was deemed accurate as of September 2021 and is subject to change by Ofgem