The big non-energy costs shake up

Hi, I’m Binoy Dharsi, part of the team here at EDF Energy that helps you keep an eye on your non-energy costs. I’m here to tell you about a big shake-up coming to the way businesses are charged for the cost of maintaining the UK electricity network.

As part of Ofgem’s Targeted Charging Review, starting as early as April 2021 there’s going to be significant changes to three of your non-energy costs.

First, BSUoS. This is the Balance of system charge. And it pays towards helping the national system operator match the amount of energy being generated to the amount being used.

Then, TNUoS, or Transmission charge and DUoS, Distribution charge. These pay for the transport of energy from where it is generated to where it needs to be – and for maintaining the cables that get it there.

Together, these make up as much as 25% of your bill, so it’s worth keeping on top of the changes that are coming.

 

Let's look at why these costs need to change.

Okay, we'll start with a simple one, BSUoS.  Right now, only users and large generators of electricity pay towards this cost.

With more small generators connecting to the network, and having access to a stable and efficient service, it’s only fair that they also pay, to help balance supply and demand.

So, from as early as 2021 the cost is going to be more fairly shared by generators and users. If you’re a small generator you’ll see an increase in your bill – and if you’re a user, you’re likely to see a decrease.

Right. Next, let’s focus on TNUoS and DUoS. The changes here are much bigger.

Currently, the total cost is spread across all users depending on when and how much they use their energy.

For example, energy costs more between 4 and 7pm on a weekday, in the winter, when demand is highest.

So today, those businesses who are able to react to how much energy they consume when demand is at its highest, can reduce how much they pay.

But what about those businesses who can’t?
 

Okay, let’s take a closer look

The TNUoS and DUoS charge covers two different types of costs that network operators need to recover.

One. Residual.  These are the actual costs of keeping the network running. Like electricity cabling, maintenance vehicles and staff wages.

Two. Forward Looking signals. These are the rewards that encourage businesses to reduce their consumption when demand is highest.

Currently both of these are bundled and charged exactly the same way.

And that’s creating a problem.

Let’s say there’s a business that is able to reduce their consumption when demand is high. They deservedly get the rewards offered by the Forward Looking Signals. BUT because their Residual cost is bundled with their Forward Looking charges, they’re not being charged their fair share towards keeping the network running.

Over time, fewer businesses will contribute their share towards residual costs – so there’s a growing shortfall in the funds needed to maintain the network.

That shortfall is being picked up by those businesses that aren’t yet able to reduce their consumption when demand is highest.

So, Ofgem wants to make these charges more fair and fit for the future.

From April 2021 at the earliest, everyone will pay a fixed amount for their residual cost - no matter when and how much energy they use.

Then businesses that can reduce their consumption during high demand will still be rewarded separately with a reduction in their Forward Looking charges. Depending where in the country they are located, this can be quite a significant amount.
 

So what happens next?

Ofgem still have some key decisions to make about how to structure the charges, and how they will apply to different types of businesses.

You'll want to understand how they impact your business.            

So be sure to follow the updates in our TalkPower program.

And, of course, if you have any questions, we’re always here to help.
 

Want to know more?

Download our one pager explainer. If you want to understand the different options being considered as part of the TCR and the potential impacts then read this guide.

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Posted by Binoy Dharsi

Market Rules Adviser

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