Following our insight piece on Triads, we thought it would be a good idea to shed some light on the potential future of use of system charges (TNUoS, DUoS and BSUoS). Ofgem is consulting on changing the way these charges are recovered to make it fairer, reduce price distortions and prepare for the future energy system via the Targeted Charging Review (TCR) Significant Code Review (SCR) and the Forward-Looking Charges and Network Access SCR.
There are two main types of charges discussed:
- Residual Charges - charges based on network usage/stress designed to incentivise load reduction and recover any shortfall required to maintain and invest in the network.
- Forwards-looking Charges – charges designed to act as investment signals and increase grid usage efficiency.
Ofgem state that consumers are currently reacting to residual charges rather than forward-looking charges, which is reducing how efficiently the grid is being used. They also argue that load shifting is increasing the residual charges for those who cannot afford to invest in peak load avoidance and that this is unfair as all users should contribute proportionately to the ongoing costs of maintaining the grid.
To examine this, the initial review aimed to consult industry on reducing embedded benefits and options to re design residual and forward looking charges. ‘Embedded benefits’ describes how sub 100 MW generators connected to the distribution network are charged differently, and favourably, compared to consumers and larger generators.
The outcomes of the review are further consultation on the following:
- Ofgem have decided that the best method to set transmission and distribution residual charges is either a fixed charge (likely a p/day charge set by LLFC) or an agreed capacity charge (deemed kVa levels for households and microbusinesses). Significantly, the current method of charging for TNUoS is not included.
- Removal of the BSUoS embedded benefit, charging BSUoS to embedded generation, removing the TNUoS generation benefit, and applying other balancing charges to embedded generation.
- Possibly creating generation-dominated and demand-dominated areas of the grid to make charging more cost-reflective of local conditions.
- Implementing the above changes in either 2020 or 2021.
Firstly, while we are discussing some potential large changes to use of system charges – it is important to note that presently all the above is still at consultation stage, nothing has been confirmed. That being said, the potential impacts to customers are as follows:
- Those currently avoiding Triads could see their TNUoS charge increase, especially important for those on pass-through contracts.
- Customers with embedded generation could see their benefits removed and have to pay BSUoS charges.
- Customers with embedded generation may no longer see any benefit from exporting during the Triads and may have to pay a charge.
- Customers with sites in different locations may see further disparities in prices between sites depending on how Ofgem treats generation- and demand-dominated regions.
- The recent increases in BSUoS prices could be tempered by increasing the demand base BSUoS is charged over (i.e. reducing the £/MWh rate).
- Those who were looking to invest in onsite generation or storage may need to amend their analysis accounting for the potential loss of revenues and increase in costs.
It is also worth noting that there are other code modifications that could also change the way these charges are recovered e.g. DCP268 which looks to get all consumers to settle DUoS half-hourly with red, amber and green charging even if they are NHH meters.
Ofgem Targeted Charging Review Documentation
For any further information or comments on this piece, please contact Sam from our Solutions Team on 02078704959 or at firstname.lastname@example.org
16 Sep | 2019
Weekly Energy Market Update - 16/09/2019
Gas and power markets surge over trifecta of bullish news and drone...
9 Sep | 2019
Weekly Energy Market Update - 09/09/2019
A week of high volatility across the energy complex and early...