After months of deliberation, Ofgem has now published its final decision on the Targeted Charging Review (TCR). The review – commissioned to assess the charging methodology of electricity networks – is expected to see savings of £300m per year from 2021, with £4bn-£5bn consumer savings in total over the period to 2040.
The most significant change relates to the “sunk cost” of the electricity networks, which will now be recovered as a fixed charge rather than one based on consumption. This is significant because it spreads network costs more equally between end-users that can drop their power consumption at peak times, and those that are unable to do so. Over the years there has been an increasing trend in customers using ‘behind the meter’ generation to avoid paying a proportion of their network charges; Ofgem has decided this is unfair.
The changes are to be implemented on transmission network costs from April 2021, and for distribution network costs from April 2022.
So what does this mean for businesses?
For fixed price businesses (who generally can’t load manage) it should be good news overall, as we would expect to see a small drop in future network costs (which make up around 15% of an average electricity bill). We will also likely see a small shift in the split between unit rate costs and standing charges.
Although the changes do potentially reduce the financial incentives for on-site generation, it remains a key driver for future carbon reduction and sustainability projects.