What is the Targeted Charging Review (TCR)?
The Targeted Charging Review (TCR) is a package of reforms being undertaken by industry regulator Ofgem to reshape electricity network charges to be fit for a world of network decentralisation. The main change relates to a shift in the way that network costs are being calculated, with a move towards fixed monthly charges based on supply capacity, as opposed to the current consumption-based methodology. The changes are scheduled to take effect from Apr ’22.
How will the TCR impact end-users?
The exact tariff structure is yet to be confirmed and as such, the full impact is not fully known. However, all suppliers include a material change clause within their T&Cs, which allows them to pass-through additional costs in the event that a new regulation or code change comes into existence. As the proposed changes would appear to fall within this category, this may have a potential impact for some contracts.
Based on available information, the key issues to be aware of are summarised below:
- The changes to the network cost methodology could see suppliers pass through additional costs on existing contracts, the budget risk is likely to be higher for October to January contract start dates;
- Network costs account for c.18.5% of a typical electricity contract;
- The scale of risk is not yet known, but shouldn’t be any more than 3.5% of 2021 annualised costs and in some instances the risk will be minimal;
- The switch towards capacity-based network charging may see cost increases for low-consuming supplies;
- For electricity contract renewals being undertaken in the coming months, in light of the uncertainty surrounding the TCR, Carbonxgen may recommend contracts with network charges being passed through if this delivers best value;
- The long-term cost impact will be positive for end-users that can’t drop consumption during peak hours, however this benefit will likely be realised on future contracts.
Carbonxgen will continue to monitor the situation and engage with suppliers in order to ensure that customers are updated with the latest news on the TCR. We are expecting to have a clearer picture by the end of this coming summer. In the meantime, if you have any questions or wish to take advice on budgets which extend beyond Apr ’21, please don’t hesitate to get in touch with your Account Manager or the procurement team:
Call: 01252 560 379