Ofgem update on Targeted Charging Review

Ofgem has issued a suggested change in electricity transportation charges which could have a huge impact on business customers, especially those using onsite generation.

The changes are part of an update on the Targeted Charging Review. The energy regulator is currently assessing the framework designed for residual chargingand cost-recovery as part of Ofgem’s price controls.

Residual charges are costs in place to allow network companies to recover their allowed revenue. Ofgem is assessing various options as to how these costs could be recovered, proposing four different methods: fixed charge, capacity demand charge, gross consumption charge, and baseline charge.

Impact on Demand Side Response (DSR)

The regulator is developing plans to balance the network on gross electricity demand. Currently, the network is balanced based on net demand. The difference is that net is actual system demand, reflecting the electricity needed from grid-connected generators. Meanwhile, gross demand is the underlying electricity demand, including all of the consumption met by alternative forms of generation. This change would have a significant impact on those using onsite generation. A gross consumption charge would mean businesses would have to pay network charges even when using electricity generated onsite from its own facility. Such a move could significantly damage the growth of Demand Side Response (DSR).

Ofgem has argued the changes will increase incentives for greater energy efficiency, as businesses will attempt to lower consumption in order to pay lower network charges. However, Ofgem’s initial assessment of the practical implications of the four options say that residual charges on gross consumption will result in the biggest cost of all the listed options. This is largely due to the additional half-hourly (HH) metering to be installed and data collection required, with the residual charge applied to total gross consumption. However, the regulator points out that at present, there is no measurement of on-site consumption or behind the meter generation which also increases the implementation cost of this option.

Furthermore, the regulator has said it wants residual charges to be recovered from suppliers, rather than generators, or perhaps a combination of both.

Ofgem expects to publish a consultation on this position next summer, with any new arrangements, if and when agreed, to be in place by 2020/21.

Stay informed with Utilitywise

Our Market Intelligence team keep a close eye on the energy markets and industry updates, keeping our clients informed at a frequency to suit them.

Find out more about Utilitywise Market Intelligence and our Triad Alert service. You can contact us by telephone on 01527 511 757, or by emailing corporate@utilitywise.com


Click here to enquire about this story 

N.B. The information contained in this entry is provided by Utilitywise, and does not necessarily reflect the views and opinions of the publisher.

© Faversham House Group Ltd 2017. edie news articles may be copied or forwarded for individual use only. No other reproduction or distribution is permitted without prior written consent.