It’s a fix for Network Costs

0
579

As the political parties were busy releasing manifestos and setting about their intended seduction of the populace, Ofgem published the long-awaited results of the Targeted Charging Review.

If it’s been a while since you last downloaded anything from the ICON app, we recommend you log on today and grab a copy of our easy-read analysis of the Targeted Charging Review because the incoming changes to our bills (April 2021 for the first set of changes) are quite substantial.

The over-arching concept for the reform has not really changed since the September release so anyone who has heard me speak or read any ICON literature on the topic since then will have the general gist:

Network residual charges, both transmission and distribution, will no longer be passed through to the consumer as a variable charge but will instead be replaced with a single fixed charge.

The fixed charge will vary between different DNO regions, and between different voltage levels.

At low voltage levels, non-half hourly customers will be segmented into different charging bands based on their annual net consumption (as averaged over 24 months). For HH meter supply points and higher voltage connections, the bands will be based on agreed capacity level.

Consumers who have historically been avoiding some of the transmission residual charges by participating in triad avoidance are going to therefore see a massive uplift in energy prices since they will now pay – as a fixed charge – the costs which they have been avoiding through under the existing, variable pricing structure based on consumption during peak periods.

Residual costs account for around 10-15% of the final bill so this is not to be sniffed at. Some indicative prices for these transmission and distribution charges are presented in the full report but please remember these are indicative and will not reflect accurately what your particular site pays.

Not great news for anyone who has invested in Demand Side Response but in Ofgem’s view, the new regime is fairer since everyone who is connected to the network, pays for the network.

The analogy I have been using is that of a gym membership. Everyone in a user group pays the same tariff regardless of whether they access the service every day, or only once a year.

So far, so simple.

However, here’s the crazy bit…

Within each voltage level, there will be four bands. But the banding thresholds will not, as you’d expect, be based on set capacity levels (e.g. 500kVA, 1000 kVA, 2500 kVA, etc).

That would be simple to calculate and easy for everyone to know what band they are in.  Instead, the banding structure will be based on percentiles of user population within each voltage class.

This means that the band any given site falls into will depend on how many similar consumers are in that voltage level, in that geographic region.

This makes it very difficult to know in advance which band a given site will fall into so forward cost analysis is a bit of a challenge.

There’s more detailed explanation in the full report (have I mentioned yet that you should sign up and download the full report?) but what we do know is that it is wise to have a good look at the distribution charging mechanism costs currently being applied to your sites and make sure they are right since network cost allocations are going to get a whole lot more impactive.

Going on from the TCR, Ofgem also needs to review how balancing services charges are passed on so will be launching a second taskforce at look at balancing costs.

Information on how to get involved will be released on the 18th December and ICON will be liaising with the Charging Forum around this and other updates.

Ofgem have also decided to suspend the market making obligation – a policy initiative which required traders to post offers to sell or buy energy at certain times of day.

The reason is that many participants thought these enforced buy/sell windows reduced liquidity at other times of day – something that is unhelpful in a marketplace which has a lot of volatility and short term price spikes.

Is this one more step along the way to dynamic pricing becoming the norm?

So, our regulator’s been busy but in terms of policy events, there’s very little to update on as government is still in purdah.

The UN has published a report stating that environment needs to become an international priority if we are to meet our climate targets -the Emissions Gap report shows the expected gap between predicted emissions and the Paris Agreement target and states that emissions have gone up by more than 1.5% per year over the past decade.

The European Investment Bank is taking this seriously and has launched a new Energy Lending Policy which sets out stringent criteria that energy projects will have to meet in order to receive EIB funding.

Businesses in Greater Manchester can also claim funding as the Business Growth Hub has money to give away. SMEs can claim up to £12,000 to invest in energy efficiency projects.

And finally, in water news, Kellogg’s has just been awarded a self-supply licence. Tap, Crackle and Pop!

By the way, if you are interested in water, I’d like to give a shout out to Inspired Energy who are hosting a Water Webinar on 4th December at 2pm – listen live or register and catch it on-demand for info on all things water including self-supply, procurement, water audits and resource efficiency. It’s a real flood of useful information!

Til next time, if you have any questions, you know where we are.

All the best,

George

For more information, or to download this week’s full report, please log onto the ICON app.