Will Time of Use call Time on Triads?

0
169

Triads are a bizarre method of calculating how much to charge a customer.

In essence, the word “triad”, when uttered in an electrical context, refers to three highest peaks in national energy demand during the winter – the half-hourly periods in which the electricity system is working the hardest, provided they are separated by ten days or more.

For half-hourly settled customers, the transmission cost element of the energy bill is partly determined by looking at how much power was consumed during the previous year’s triad peaks.

This has meant that over recent years, more and more consumers play the game of trying to guess when a peak will occur and, when spidey-senses start tingling – or when National Grid and its Scottish Equivalents issue a Notice of Insufficient System Margin (NISM) – they come off-line, switching over to back-up generation to avoid consuming – and incurring charges – during these peaks.

If this is all a bit new to you, or you would like a handy refresher, the National Grid’s Introduction to TRIADs spells it out quite nicely.

The problem with this is two-fold:

  1. As a charging mechanism this is, quite clearly, completely bonkers. Not once has anyone looked at a triad period consumption profile and thought “hmm… this large manufacturing site doesn’t appear to need any electricity; better not charge them anything.”
  2. Some parties have got really good at predicting triads – npower in particular deserve a shout-out here – this means significant numbers of non-domestic users now engage in triad avoidance, which is affecting not only the pattern of national demand, but as these avoiders partially withdraw from contributions to network upkeep, the rest of us are picking up more of the tab.

I’ve always used the railway analogy when talking about peak pricing for power. Peak time avoidance schemes have been developed to solve a similar problem to that addressed through ticketing for peak travel. They both typically happen around tea-time. Travel peaks because people are heading home from work; electrical demand peaks because people get in the house, make tea and watch The Chase, whilst the office, retail and leisure loads haven’t yet powered down.

Peak price signals mean those who can avoid the peak, do so.

Virgin Trains demonstrated beautifully why this is not always effective when they announced last week that off-peak travel time restrictions on the West Coast Mainline will no longer apply on a Friday. Apparently, having a mortgage-sized price difference between the 18:33 and the 19:03 means most people choose to get home half-an-hour later; this leads to massive overcrowding on the first off-peak train.

The price signal changed our behaviour, shifting demand outside of the traditional peak. But doing so has altered demand patterns and created a new peak elsewhere, one which we are less equipped to deal with.

Equally, triad avoidance and other peak lopping schemes have altered electrical demand patterns. And the peaks are becoming increasingly difficult to predict, making system balancing a little more challenging; moreover businesses going off-line are paying less for the service so households, schools and small businesses are having to pay proportionately more.

Because of this, there is a Change Proposal with Ofgem at the moment which I have been talking about at conferences and workshops all year and which I think far more people should be aware of.

CMP 274, or to give it it’s Sunday name, CMP 274 – Winter TNUoS Time of Use Tariff (TToUT) for Demand TNUoS (catchy!) proposes to change how the demand residual – the major element of transmission charging is calculated.

If approved, this would result in residual demand charges being based on a newly created winter baseline (not triad).

(By the way, “Residual charges” are essentially ‘top up’ network charges.  They enable network companies to recover their allowed revenues once all other charges are already collected. They relate to costs that cannot be attributed to individual users’ usage of the network).

The new winter baseline would be calculated across 06:30-10:30 and 16:30-20:30 between Monday – Saturday, November to February.

This means it gets rid of the guess work, but instead introduces a morning peak as well as the evening peak every day, except Sundays and Bank Holidays, in the winter. Charges will be half-hourly settled ‘volumetric’ – i.e. based on consumption in every half-hour within those times.

The idea is that by getting rid of half-hourly peaks and levelising the cost-distribution across a wider period, we will all load shift differently, smoothing out the demand curve across the busy times.

For Virgin Trains, lifting the price restrictions dispersed the crowds. People didn’t hang around until 7pm but simply boarded the first convenient train so all rolling stock ran with more efficient passenger loads. Everyone wins, except possibly the bar-takings at the Euston Tap.

Ofgem want each user to pay an amount that broadly reflects the costs the user imposes on the network. Peak time-of-use pricing should be better for national system balancing but may not be the best of news for the end-user.

For retailers, where Saturdays in the run-up to Christmas is a busy time – this is going to hit you.

For hoteliers that have a breakfast peak load – this is going to hit you.

For early-opening gyms and schools that run breakfast clubs – this is going to hit you.

For anyone who has happily enjoyed triad avoidance for years, but doesn’t have capacity to come off-line for four hours, twice a day, every day – this is going to hit you.

That’s a lot of hits for the average energy manager!

I hasten to point out this is not yet definitely happening and I don’t have the insider scoop but last I heard, Ofgem’s ‘minded to’ position was to approve this suggestion (which was actually first raised in 2016) – although they are waiting because two significant charging reviews are expected imminently.

The Targeted Charging Review (TCR) and Network Access and Forward-looking Charges Review will appraise various proposals for how to use residual charges to recover network costs. Depending on the options taken forward, we could see many more charges linked to either connected capacity or, as in the case for CMP 274, linked to net Time-of-Use (kWh) consumption. I think the latter is inevitable, especially as this article from Bloomberg shows how Octopus Energy is using time of use tariffs to offer cheaper power to domestic consumers.

What this means is that the case for demand flexibility and an optimised approach to energy procurement becomes much stronger. In fact, I would say, essential.

I know! I would say that… at ICON, we all get excited about demand response at the best of times!

Back to the point, though.

Throughout 2019 and 2020, the Significant Code Reviews will appraise the options and put forward a slew of suggestions and Code Modifications that will fundamentally change our electricity charging mechanisms.

The first changes approved will start to come in from April 2022, with all modifications implemented by April 2023.

This doesn’t give us long to prepare, which some would say is unusual for a policy or pricing modification. Best get asking questions:

  • Do we have the right infrastructure (back-up generation, storage, monitoring systems) to manage our demand?
  • Does my energy procurement team (broker, supplier or in-house) understand optimisation and offer an appropriate service for our needs?
  • Can I tune into a network of people who will work with us to explain the changes, ascertain what to do and maybe even entertain whilst they do it?

If the answer to any of the above is ‘no’ or ‘I don’t know’, drop an email back and I will share some of my secrets, or put you in touch with someone who can offer more practical help.

Forget standing on the sidelines of demand response, we need to jump right on in.

Change to electricity pricing is coming; the good news is, with a bit of preparation (and a conversation between our finance and estates management teams), we can adapt and deliver benefit to the system. We might even turn out better off for it.

Georgina PenfoldGeorge reads all the energy and environmental material published by government so you don’t have to.