Today Ofgem has announced its final decision on its Targeted Charging Review, which has received a mixed reaction from the Solar Trade Association (STA).
The regulator is modernising electricity network charging through two closely-linked reviews:
- The Access and forward-looking charges review is looking at the ‘forward-looking charges’ which sends signals to users about the effect of their behaviour, encouraging them to use the networks in a particular way.
- The Targeted Charging Review (TCR) has examined the ‘residual charges’ which recover the fixed costs of providing existing pylons and cables, and the differences in charges faced by smaller distributed generators and larger generators (known as Embedded Benefits).
While less severe than full reform, according to the non-profit association, Ofgem’s decision will ‘undoubtedly impact on the extremely tight economics for subsidy free solar development.’
Additionally, consumers are ‘set to lose an incentive to use less power, as a result of changes to the way residual charges will be levied’.
Chris Hewett, Chief Executive of STA, said: “Despite their own revised analysis highlighting that these changes risk delaying deployment of subsidy-free low cost renewables, Ofgem are pressing ahead with changes that make net zero harder to reach, not easier.
“With the urgency of climate change, it is abundantly clear that the regulator’s current objectives are now outdated and absolutely vital that the next government addresses this.”
Set to be implemented in 2021, STA has estimated that partial reform could entail a potential loss of ~£2.5/MWh in additional revenue for solar PV.
While the STA says they are ‘disappointed’ that the prospect of full BSUOS reform remains on the table, they welcome Ofgem’s decision to launch a second BSUoS Task Force to further examine the question of how to fairly allocate the cost of balancing the transmission system.
Under the current system, residual charges are paid per kilowatt hour used, meaning that consumers inevitably save when reducing usage.
The new system will implement a fixed charge for every household and business, which will mean those who have taken action to curb usage, by taking up energy efficiency measures or investing in self-generation, will face higher bills, while users with the highest consumption will see reductions in costs.
While Ofgem has landed on a more nuanced approach to addressing businesses residual charges than what was originally proposed, the impact could still be significant.
The STA engaged closely with Ofgem on this, and worked with other leading industry associations to call for a review of all elements of the charging system and for Ofgem to implement any changes simultaneously in order to provide market certainty.
In the run-up to the general election, the STA has highlighted amending Ofgem’s remit to align with net zero as a key priority for the next government.
According to STA the regulator’s mandate, which has not changed since 2011, is ‘completely out of step with the UK’s legally binding net zero target, and it is essential this this is addressed by the next government.’
Read the whole Ofgem review here