Despite COVID, the Targeted Charging Review will still go ahead in 2021

Thursday 9th July 2020

The percentage of non-energy costs, also called Third Party Costs (TPCs), which make up a bill now amount to around 60%.

Some of these, such as the Renewable Obligation, are government subsidies to help support the growth of renewable energy generation. However, network charges also make up a percentage of non-energy costs.

Network charges allow the network owners and operators the opportunity to recover some of the costs associated with the operation and maintenance of the infrastructure that helps to power homes and businesses across the country.

As part of its ongoing work to create a fairer energy network, the industry regulator Ofgem launched the Targeted Charging Review (TCR) in 2017. The purpose of the TCR is to reduce distortion across the network by ensuring that network charges are cost-reflective and paid by the relevant parties, as the current charging structures incentivise avoidance for some network users, thereby creating unfair cost burdens on others.

The TCR is a wide-ranging programme, looking as far forward as 2022, and has so far helped to bring equitability to the network, ensuring that the burden of non-energy costs are more fairly distributed. Despite COVID-19, these changes are still expected to come into place over the next 12 to 24 months, and businesses should be preparing for potentially revised non-energy charges.

The latest developments

The last TCR decision, published in November 2019, established several changes. These primarily focussed on embedded benefits, including:

  • The removal of the Transmission Generation Residual embedded benefit, effective April 2021,
  • A change to the calculation of the Balancing Services Use of System (BSUoS) charge, effective April 2021
  • The introduction of changed Distribution Use of Service (DUoS) and Transmission Network Use of System (TNUoS) charges, banded by voltage level, effective April 2022.

Other modifications are expected from 2022 which will allow for reforms to both the Distribution Demand Residual charges and the Transmission Demand Residual charges. These modifications, along with those already expected in 2021, are helping the energy network to adapt to a changing generation landscape.

The Access and Forward-Looking Charging Review is complementary to the TCR and aims to incentivise flexible behaviour across the transmission and distribution networks.

How will the TCR affect me?

These revised charges are expected to come into force from 2021 onward. Businesses should be factoring these costs into their energy bills, particularly if on a flexible energy contract. Customers on a fixed contract can expect a degree of price certainty, as suppliers are continuing to work closely with industry bodies and factoring into their pricing strategies this information as they receive it.

Despite delays caused by COVD-19, the TCR is still progressing, though changes to the DUoS and TNUoS charges will now apply from April 2022.

It’s important to bear in mind the aim of the TCR is to ensure these charges are more equitably distributed across system users. Though the charges are changing, the cost impact may not necessarily lead to an increase. To understand the TCR and its future impact please get in touch