Latest news on major changes to non-commodity costs
As you are no doubt well aware by now, the way in which key non-commodity charges are calculated is undergoing a huge shake-up, as a result of a two major reviews introduced by Ofgem.
However, as we reported last week, despite being close to being finalised, Ofgem’s Targeted Charging Review (TCR) has now pushed back key changes to transmission charges from April 2021 to April 2022 (see our recent blog for more on this).
Ofgem’s other review – which focuses on Access and Forward-Looking Charges – is still in the planning stage. But following an update last month, we now have some more detail on what’s proposed, of which more in a minute.
Consultation on TCR implementation
But first, under Ofgem’s TCR, transmission and distribution charges are set to move to a new charging-band system.
An industry working group has now released a consultation that covers:
- How the new national charging bands will be set at the beginning of each transmission price control period
- The process for allocating customers to these bands
- How customers can query and potentially dispute the banding they have been allocated to. (But it’s worth noting that Ofgem has stated that moving bands within the price control period would only be allowed under exceptional circumstances)
As well as asking for views around some of the proposed methodology, the consultation also provides draft legal text for review.
You can view the consultation here. The deadline for feedback is 17 April.
Defining clearer focus for further reforms
Now, when it comes to Access and Forward-Looking Charges, Ofgem has narrowed down the large list of potential options it released last September.
For Access rights, Ofgem is looking at how consumers access the electricity system and the potential for offering new products in this area.
For example, a customer may pay less if they are willing to access the system during off-peak periods or to be curtailed at certain times.
Range of options for DUoS
For Distribution Use of System (DUoS) charges, Ofgem is considering changes to a number of areas. These include potential ways to reduce connection costs for some customers, as well as improving the methodology to calculate forward-looking DUoS charges.
Options under consideration include:
- Should there be seasonal demand tariffs or should tariffs be based more on agreed supply capacity?
- Should there be more locational DUoS tariffs within a Distribution Network Operator (DNO) area?
- Should customers receive a credit if their activity is helping the system (a generator in a demand-dominated zone or a demand customer in a generator-dominated zone)?
TNUoS in focus
Ofgem is also looking at options for reviewing the forward-looking element of TNUoS charges.
These options include:
- Looking at the locational signals for TNUoS for embedded generation
- Improving the methodology to calculate TNUoS charges and redesigning the charges. For example, should tariffs be based on seasonal time-of-use or on agreed supply capacity?
Consultation coming this autumn
Ofgem is due to publish its ‘minded to’ decision in the autumn and will ask for input via a consultation.
A final decision on the changes is then planned for Spring 2021, with implementation expected to take place in April 2023.
In the meantime, we appreciate these changes are complex and the information currently available doesn’t provide a clear view of what’s to come.
Our teams of non-commodity charges and forecasting experts are working hard to determine likely outcomes for customers, so please do get in touch with your Client Lead for more information (existing customers). Or drop us an email with any queries to nBS@npower.com.
We will also, of course, keep you updated as things progress.