Ofgem has confirmed that there will be major changes to the way businesses are charged by power networks.
A change to transmission charging methodology could have a significant impact on energy costs for some businesses, particularly those with high capacity, relative to their demand and those with the ability to shift loads at peak times.
From April 2021, Transmission Network Charges (TNUoS) will no longer be calculated based on demand, instead, Ofgem will impose a fixed charge based on the available capacity of a site, or by recent annual demand.
Distribution Network (DUoS) Charges will also change from April 2022, again they will move to a fixed charge based on available capacity.
A new banding system will be implemented with business falling under four different bands and their corresponding charges which will be determined by site capacity and voltage connection; Ofgem will use a business’ available capacity over the last 24-months to determine its band.
In summary, the higher a site’s capacity, the higher the pricing band, resulting in a higher fixed charge.
NB. Bandings are yet to be released and we will update accordingly
Businesses are currently penalised for exceeding available capacity which results in them saving spare capacity for later use, as relinquished capacity can be expensive to reclaim. However, with the proposed changes, saving this spare, backup capacity could place companies within the higher pricing bands; as a result, businesses are advised to adjust their capacity to meet their needs.
Although there will still be benefits to reducing usage at peak times, the value of ‘load managing’ will decrease due to fixed charges.
The savings achieved by sites which reduce overall consumption will also be lower due to the changes in distribution network charges.
Many businesses currently avoid network charges which has resulted in an overhaul by Ofgem to make the system fairer, so the costs are not passed on to those unable to shift demand.
Although, industry experts agree that improved fairness is required, they also worry about the lack of incentives for businesses to reduce usage at peak times. It could also have a negative impact on the demand-side response and flexibility sector.