Policy Impacts

Major changes to energy charges get extra time

Posted on 30 May 2019
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.

Uncertainty, confusion and an inability to budget are all bad news in any situation, but especially when it comes to an expensive commodity such as energy.

In actual fact, it’s the non-commodity elements of energy costs that are currently causing consternation for many large consumers.

So it’s been good to hear that Ofgem – which is planning major changes to the way distribution and transmission charges are calculated, as well as embedded benefits – is allowing extra time before these changes take effect.

Pushing back implementation dates

In an announcement last week, we learned that:

  1. Changes to embedded benefits arrangements are now looking more likely to come info force in April 2021, and the earlier date of April 2020 has now been ruled out.

  2. There may be more time for implementing new residual charging arrangements too, with April 2023 now added as a ‘preferred option’, alongside April 2021 or phasing between 2021 and 2023.

  3. Network access and forward-looking charging reforms also have more time, with Ofgem now proposing April 2023 for implementation for all reforms. Previously, April 2022 had been indicated for changes related to transmission charges and April 2023 for changes to distribution arrangements.

Pushing these dates back will, of course, allow more time to really understand exactly how these changes will impact consumer invoices – and for consumers to then adjust to any changes in costs.

We expect a more definitive decision on exact timings and scope of changes from Ofgem later in the summer, and will keep you updated.

Recap on scope of Ofgem’s reforms

To recap, Ofgem’s reforms focus on two key areas of electricity non-commodity costs:

A Targeted Charging Review (TCR) is looking at how the residual element – which can be a major part of the charge – will be calculated for Transmission Network Use of System (TNUoS) and Distribution Use of System (DUoS) charges in the future.

A Forward-Looking Charges and Access Reform which includes:

  • A comprehensive review of the forward-looking element 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 the forward-looking element of Transmission Network Use of System (TNUoS) charges.

Higher bills for some, lower bills for others

Currently, a large part of both TNUoS and DUoS charges is geared around time of use – so enabling consumers who are able to be flexible and reduce consumption during peak times to reduce their share.

For many large consumers who currently reduce Grid demand at peak times – including during suspected Triad periods – these changes are likely to equal higher bills.

But how much will really depend not only on your consumption pattern but also on where you’re located on the network.

Some consumers will certainly pay more – but others will pay less. So there will be winners and losers.

Flexibility will remain key

The good news for businesses who currently employee flexibility to reduce overall bill costs is that these benefits will remain a little longer.

Those organisations who are already investing in new-build flexibility and battery storage will also find their business case more resilient. This is because new investment is stalling as a result of continued market change, so grid service revenues remain more consistent.

But flexibility via demand side response is still a key growth area – albeit the opportunities are changing. For example, more Distribution Network Operators are starting to invite consumers to participate in local grid demand balancing schemes.

If you’d like to find out more about how Ofgem’s changes may affect you – and new opportunities to manage future costs – please contact our experts at Energy HQ by calling 0800 193 6866, or send an email to EnergyHQ@npower.com

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