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Ofgem consults on Targeted Charging Review

As signalled by our blog in early March about charging arrangements for embedded generation, Ofgem have published a consultation on their Targeted Charging Review (TCR).

Ofgem are consulting on reviewing and changing some of the charges that electricity transmission and distribution network users pay for using the network. In Ofgem’s view the current way the ‘residual’ charges are applied could lead to potentially detrimental differences in costs for different groups of consumers, and inefficient investment decisions resulting in increasing costs for consumers overall.
The consultation proposes the TCR is delivered in a phased way, through a combination of industry-led code modifications for more developed work, and a Significant Code Review (SCR) for longer-term work. The main elements of the consultation include:

  • Residual transmission and distribution charging:

    • Ofgem are proposing a full review of how the Transmission Network Use of System (TNUoS) and Distribution Use of System (DUoS) residual charges are set
    • Five high-level options for how residual charges could be constructed are proposed in the consultation: (a) a charge linked to net (kWh) consumption; (b) a fixed price charge; (c) fixed charges set by connected capacity; (d) gross kWh consumption; (e) a hybrid approach
    • Ofgem are seeking views on whether the allocation of residual charges between classes of users should change in future, and in particular if the balance of residual charge recovery between generation and demand should be changed
  • Charging arrangements for smaller embedded generation:

    • Ofgem set out the other elements of embedded benefits, in addition to TNUoS Demand Residual payments, that they propose to consider in the SCR. These are: (i) TNUoS generation residual; (ii) TNUoS locational charges; (iii) BSUoS demand charge payments; (iv) BSUoS generation charge
    • Ofgem’s view is that embedded benefits arising from the above charges are preventing a level playing-field between smaller EG and other forms of generation
  • Consulting on a Significant Code Review:

    • Ofgem are proposing to look at residual charges and some aspects of charging for smaller EG in a Significant Code Review. Ofgem think that an SCR is appropriate because it allows them to consider a number of important and interrelated questions, affecting more than one charging code, in a co-ordinated and consistent way
  • Charging arrangements for storage:

    • In order to secure a more level playing-field, Ofgem consider that changes to charging arrangements for storage are required
    • Ofgem does not this it appropriate for storage to pay both demand and generation residual network charges. The consultation proposes that storage should be treated as generation for the purpose of setting all residual charges and therefore should not pay demand residual charges for with transmission or distribution
    • Storage above 100MW pays both demand and generation BSUoS charges. Ofgem propose storage should not pay these two charges and are consulting on two ways of reducing BSUoS costs for these types of storage
    • Ofgem currently consider that if, following the consultation, there is a clear way forward on charges for storage, these changes should be taken forward ‘relatively quickly’ by industry

The consultation document is available here – and responses are invited by 10th April.

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