Policy Impacts

Decision on changes to forward-looking charges delayed

Posted on 12 November 2020
By Helen Inwood
Helen Inwood
Non Commodity Charging Manager

Helen currently leads a team who are responsible for the forecasting of Non-Commodity Charges for costing purposes, with a main focus on understanding and influencing the regulatory changes that affect these costs.

As we head into winter, we were anticipating the publication of Ofgem’s ‘minded to’ decision about Access & Forward-Looking Charges, which had been scheduled for release in ‘late Autumn’.

Alas, this much-awaited update has now been put back to next year.

Ofgem says this is to buy more time to look further at flexibility markets, and also some wider issues with transmission charging for generators.

Impact to distribution and transmission charges

For consumers, the main impact of this review is changes to the way in which the forward-looking charging element* that makes up part of both Distribution Use of System (DUoS) and Transmission Network Use of System (TNUoS) charges is calculated.

We have already had changes confirmed for the larger residual** element of these charges via Ofgem’s Targeted Charging Review (TCR).

But for the forward-looking element, Ofgem is still considering a number of options.

DUoS tariff numbers to dramatically increase

For DUoS, Ofgem is looking at moving away from the current approach of setting tariffs for each voltage level within a Distribution Network Operator (DNO) region.

Instead, the options being considered would introduce many more forward-looking tariffs and would be based on where each customer connects to the DNO network.

Combined with the new bandings introduced for residual charges under TCR, this could result in more than 100,000 DUoS tariffs nationwide.

TNUoS may retain modified Triads

For TNUoS, a 4-7pm consumption based model is being considered, perhaps with a modified Triad approach for larger users.

Different rates for summer and winter are also on the table. 

Embedded generation to pay TNUoS?

In addition, Ofgem is also considering whether, in certain areas, small embedded generators (>1MW) that have export agreements should also start paying TNUoS charges. This is to recognise their use of the transmission system.

This is a big change and could impact businesses with on-site generation.

But Ofgem believes that applying a locational TNUoS charge should provide a better investment signal to develop generation in the right areas – though they do recognise that some sort of transitional arrangement may be required for existing assets.

Large price changes likely

When it comes to consumer charges, Ofgem has released some initial high-level analysis which, at face value, shows there could be large price changes.

This is leading Ofgem to even consider ‘caps and collars’ to prices.

But at this stage, any numbers may not be representative of the final decision.

Implementation to be delayed

Ofgem was originally proposing that these changes come into force in April 2023. This is a year after changes to the residual element of DUoS and TNUoS charges are set to be introduced (April 2022).   

But while Ofgem has confirmed that the TCR changes will still go ahead in April 2022, it recognises that the implementation date for forward-looking charges may need to slip back now the decision date had been delayed.

If you have any queries regarding these changes to non-commodity costs, contact your Client Lead (existing customers). Or email us via business@npower.com. 

*Electricity network and distribution charges are made of two key components – forward-looking and residual elements. The Forward-looking element is designed to ensure network users receive time-of-use pricing signals that reflect the cost of how and when they consume energy. This can encourage users to be flexible in their use, in order to reduce their own electricity bills and reduce network costs overall for the benefit of all users.

** The residual element of network charges is the major component of each charge. It’s a ‘top up’ or ‘scaling’ charge to allow network operators to recover the total revenues they need to run their networks. Under Ofgem’s Targeted Charging Review, from April 2022 half-hourly metered customers will be see residual costs applied as a new standing charge based on a new Banding system.

Comments

Your email address will not be published.