By Paul Gleaves, Head of Risk and Trading
After its implementation was pushed back by 12-months last year (to 1 April 2022), the Targeted Charging Review (TCR) is once again heavily impacting discussions around energy procurement and future costs.
The TCR is a package of reforms being undertaken by industry regulator Ofgem to reshape electricity network charges so that they are fit for a world of network decentralisation. It affects the residual component of distribution and network costs, which (at current forecasts) account for around 10% of a typical energy supply contract cost. Currently, these costs are recovered via the unit rate (p/kWh). However, going forward these will be priced by suppliers in the standing charge (£/Day).
Although this is a seemingly straightforward change, it is a big upheaval for the industry, with standing charge costs now being allocated into 17 pricing bands (per region), based on the size of the supply. Consequently, some suppliers are not able to offer fully fixed contracts beyond 31 March 2022. This is largely because the new TCR distribution costs are being allocated based on each individual supply’s ‘Line Loss Factor’ (LLF), which is the last three digits of the MPAN top-line shown on an energy bill. However, the Distribution Network Operators (DNOs) have only just begun the process of updating the new LLFs onto the central electricity database, a process that is not expected to be completed until August. As a result of this, certain suppliers are unwilling to accept the risk of charges potentially being assigned incorrectly.
In order to accommodate these uncertainties, Carbonxgen will be performing additional checks on supplier offers to ensure that any offers that have not been priced correctly are rejected. We will also ensure any offers with TCR passed-through, or where the offer is not 100% fully fixed, is clearly noted on the tender summary.
Other issues that customers should be aware of regarding TCR, are as follows:
⦁ TCR will place a larger proportion of the cost into the standing charge. This could cause significant overall cost increases in lower consuming supplies, or those sites that are expecting a large future drop in consumption;
⦁ Overall, TCR is a largely cost neutral exercise. However, there could be significant variations in cost movement at site / supply level;
⦁ Long-term, there should be a cost-benefit to property sector consumers (who normally do not load manage);
⦁ There will be a TCR ‘transition premium’ in all renewals taking place between 1 May 2021 and 28 Feb 2022. This is not double-charging, but simply a one-off premium to accommodate the change in charging structure. In some instances, this may add +3% to a renewal price.
Carbonxgen will continue to monitor the situation and engage with suppliers in order to ensure that customers are updated with the latest news on TCR. In the meantime, if you have any questions or wish to take advice on budgets that extend beyond Apr ’22, please do get in touch with your account manager or the procurement team:
Call: 01252 560 379