Your electricity costs are gradually becoming less about the wholesale cost of electricity and more about the charges that relate to the industry. These charges include the costs of the transmission and distribution of energy from the point of generation to the point of use in your house or business.
These types of charges now account for more than 50% of the price you pay for your electricity.
As the consumption of electricity has evolved so has the methods of generation and storage with much more home/ business based generation coming into play. This evolution has meant that Ofgem, as the national authority, have had to look at how energy is charged for. They need to ensure that the costs of continuing to build, maintain, and operate the network are covered.
As a result of this Ofgem launched their Targeted Charging Review (TCR) in August 2017 to investigate potential solutions and changes that would be required to the network. They then published their plan for how these changes will be implemented at the end of 2019.
Their plan sets out changes to be implemented in 2021 and 2022 and relate to the way that energy suppliers both calculate and show charges on certain types of supply.
This means that all non-domestic consumers will be allocated to one of several charging bands that will then determine the charging thresholds. The suppliers will adjust their billing systems to cater for the new billing methodologies and implement new tariffs to account for the new charges.
Any Half Hourly supplies will be banded by Authorised Capacity levels whilst other supplies will be allocated by usage volumes. Reducing consumption at peak times will, however, no longer help with avoiding paying the fixed distribution (DUoS) and transmission (TNUoS) charges.
The effect of these changes will be that some businesses will end up paying a larger proportion of their electricity costs through the fixed elements of their bills (higher standing charges and in particular higher capacity charges) so it will make it even more important to ensure that your Capacity levels are set correctly.
Ofgem’s aim is to ensure that costs are fully covered for the future network developments that are expected in order to reach its overall goals.
The earliest date of implementation is from April 2021 when the BSUoS changes are implemented. Further changes to the TNUoS and DUoS charges will follow from April 2022.