What next after TRIADS?
In December 2019 Ofgem published its final decision on its ‘Targeted Charging Review’ (TCR). The TCR sets the framework for major changes to the residual network charges for all electricity consumers. The TCR signals the scrapping of (TNUoS (1)) Triads charges from April 2021 and changes to ‘red zone’ (DUoS (2)) charges from April 2020. This note briefly explains the expected changes and what commercial and industrial electricity consumers can do to prepare.
What is the Targeted Charging Review (TCR)?
Ofgem is updating electricity network charging through two closely-linked reviews:
· The Targeted Charging Review (TCR) which examined the ‘residual charges’ to 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”).
· The Access and forward-looking charges review which 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 and may further impact time-of-use charging. This review has yet to conclude: Ofgem’s minded-to decision is expected mid-2020 and its final decision in early 2021.
What will replace Triads? How will DUoS red zone charges change?
The Triad system will be replaced by fixed charges set for five tiers voltage of connection. The distribution connection tiers are then further split into four bands. The bands will be set in terms of agreed capacity levels for users at higher voltages with agreed import capacity, and net volume levels for users without an agreed capacity.
This means that consumers will no longer be able to avoid transmission network charges through demand side management. Distribution network charges will similarly be changed so that a smaller portion is determined by time-of-use than at present.
Ofgem’s statement sets out the principles behind the charging structure, but not the charges themselves, which will be calculated by distribution companies and suppliers. Some commentators believe that phased implementation of the charges is likely, starting with non-half hourly low voltage customers.
What will be the impact?
Consumers that are currently undertaking TRIAD / red zone avoidance through load shedding or shifting will see the TNUoS and DUoS components of their bills rise from April 2021. Other consumers may see a very modest reduction in their network charges.
What should businesses do?
Ofgem has specifically designed the charging structures to spread the cost of maintaining the electricity network more fairly across customer groups. They have sought to prevent those with flexible loads from avoiding network charges. Nonetheless, energy managers can take steps to limit their exposure. Sites with network connections that happen to be on the cusp of kVa charging bands have the greatest opportunity to influence their position. Unfortunately, until the DNO/suppliers set out their pricing bands based on Ofgem’s rules, it is difficult to know which sites these will be. At this stage we recommend:
- Carrying on with TRIAD avoidance through the winter of 2020/21 and red-zone avoidance up to April 2022 (or possibly longer, if TCR introduction is indeed to be phased).
- Focusing on energy efficiency to reduce kVA at all times of day, not just peak times. The value of energy efficiency could be enhanced – precipitating a reduction in fixed network charges as well as from straight kWh consumption reduction. Note that the kVA for banding will be based on historic data and only updated periodically, so this benefit may not be immediate.
- Reviewing kVA capacity agreements and reducing any ‘spare’ capacity, with a view to being in the lowest band possible. This needs to be balanced against the risk of needing to increase capacity again in the future. Increasing the capacity of a network connection is usually difficult and / or expensive, particularly in network constrained areas.