Binoy Dharsi, a Senior Transmission and Trading advisor ran a webinar last week, giving us the latest on Ofgem’s Targeted Charging Review TCR). He has been leading the EDF Energy trading project and shared where Ofgem are up to in their Targeted Charging Review and how it’s likely to impact business customers.
We’ve summarised the key take-outs, you can listen and view again on our webinar page.
Charging tomorrow’s customers fairly
The ultimate aim of the TCR is to align charging with the new ways we consume and generate energy which can cause increased costs for some users as a consequence of others who can currently avoid network charges.
Binoy covered the three main areas the TCR is looking at for reform:
1) Charging methodologies – Ofgem’s Significant Code Review (SCR)
This is aimed at reforming residual charging component for Transmission and Distribution, for both generation and demand. Ofgem has shortlisted some of the feasible options for collecting residual components in their working paper released in November 2017. They are aiming to present a consultation in Summer 18 with an ultimate implementation by 2020/2021.
This is a tight deadline and all of this must be done in a way that doesn’t unintentionally impact the consumer. There is a possibility of delays given the work required. As it stands Ofgem believe this delivery date is possible. The consultation and supporting workshops held generally points towards collecting the residual component on the tariff through a fixed option (via a standing charge or capacity element), which would move away from consumption approach. It's important to note that the locational part of these costs are not being touched by the SCR, so you will continue to receive a proportion of the bill via the existing Triad and consumption banding Distribution components .
How might the costs be determined?
Ofgem has suggested that principal based regulation is the appropriate approach so that where possible charging is:
Proportional - with a 2020/21 timescale in place Ofgem aren’t planning to completely reinvent the charging mechanism. They will be focusing on existing data for HH customers so they can develop proportional measures.
Fairness - this is where Ofgem must make sure that vulnerable customers aren’t negatively impacted, or businesses who are pan -European. Imposing high costs could impact economic prosperity for them. So the review needs to define what fair means across all segments.
Reducing distortion - Ofgem are clear that they are not aiming to remove distortion. Removing it could have unintended consequences if the costs to larger businesses are too penal. For example, businesses could disconnect from Grid, achieving self -generation without network costs.
In conclusion, exploring these three principals will hopefully produce a scheme that may not be perfect but it will address the issue of users who avoid charges by changing their consumption patterns to avoid network costs which then get allocated to other users. There’s an unfair distortion which needs to be balanced.
2 ) Unlocking flexibility- the forward-looking and network access working paper
Ofgem released concurrently with TCR paper back in November 2017. This paper lays out Ofgem’s current thinking on how our system should work in the future and what a successful network looks like, for example making our system fit for electric vehicles. This is purely a working paper at the moment but one of the messages is that flexibility is a key attribute and where the value will lie. They will explore whether it's suitable to charge people based on their access to the network (eg battery, EV and intermittency) and how flexible there are. The desire is to create a niche and level playing field for everyone to operate in. Imperial College study indicated that approximately £10bn to £13bn of network CAPEX investment could be saved by 2050 by exploiting flexible technologies. So, whatever the outcomes of the TCR, there could be further uncertainty within this area.
3) Business as usual- modifications in the charging space (TNUoS and DuOS)
Whilst the various reviews are in progress, the industry will continue to operate as usual, with modifications to tweak and improve current charging and current methodologies, most notably:
Transmission - Ofgem are looking at how batteries are charged for, looking at where does a battery fit into residual charging space.
Distribution - modifications to value of generation on distribution network is undervalued. Current thinking is around whether they should be increased.
In summary, there are a lot of complexities and moving parts in this review and the outcomes are yet to be determined. We will continue to keep you informed on how this will impact you so do watch this space for further updates. We recommend you listen to the webinar via our Talk Power page for more of the detail surrounding the TCR review.
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