Fair shares – changes to UK network charges

Ofgem's review recommends changes to residual charges, to ensure that network costs are shared fairly. Below is an outline of how these changes may affect your business.

The Targeted Charging Review (TCR): Significant Code Review (SCR) is an Ofgem-led project that assesses how electricity network charges should be set and recovered in Great Britain. This ensures that these costs are shared fairly.

Residual charges
Most of the costs of the electricity network are collected through ‘residual charges’. These costs don’t vary with network usage, and largely relate to costs that have already been incurred, such as past investment in underground cables. Ofgem is consulting on changes to residual charges to make sure costs are shared more fairly.

Proposal 1: fixed charges (Ofgem’s preferred option)
Energy users will pay a fixed residual charge based on their Line Loss Factor Class (LLFC). This is associated with their connection voltage and the type of consumer. This means all energy users within the same LLFC will pay the same residual charges, regardless of how much energy they use. There would be charging segments, and the calculation undertaken for each segment; Extra High Voltage (EHV) High Voltage (HV) and Low Voltage (LV) would all be single segments.

Proposal 2: agreed capacity charge
Energy users will pay residual charges based on the capacity agreement they have with their network operators, regardless of how much energy they use. For larger demand customers, this would be linked to the connection capacity contained in the connection agreement. For smaller customers, Ofgem would deem the necessary capacity. So, domestic customers would be deemed as 4kW, 6kW or 8kW.

Customers with electric vehicles or heat pumps would be put into the 8kW category. In both options the importance of the Triad is reduced or removed. Implementation of the preferred fixed-term option is suggested for 2021, possibly phased in.

Ofgem has provided detailed impact analysis as part of the consultation document, which you can read here.

A decision on TCR is expected to be announced in June 2019, with either full implemention from April 2021 or a phased implementation between April 2021 to April 2023.

Removal of embedded benefits
‘Embedded benefits’ is the term given to the cost reductions that smaller generators currently receive due to the structure of the charging regime. Ofgem is proposing to remove all of these benefits, though it is currently considering whether to retain the ability to avoid Balancing System Use of System (BSUoS) charges. The small generator discount is proposed to be continued until these benefits are removed.

There are currently three benefits:

Transmission generation residual payments Smaller embedded generation is not subject to transmission generation residual payments. This makes smaller transmission generators more competitive when compared to their larger peers, and directly increases costs for consumers.

BSUoS charges payments Smaller embedded generators get paid for helping suppliers avoid BSUoS charges.

BSUoS charges, avoided charges Smaller embedded generators avoid paying generation BSUoS charges.

The minded-to decision can be found here.

You can read our latest regulatory report here