Non-Commodity Costs Forecast for 2021: Part 2 – Targeted Charging Review (TCR)

In the previous blog post in this series, we explained how non-commodity costs have been increasing over the last few years and will likely continue to do so in 2021. In this blog post, we’ll delve deeper into Ofgem’s Targeted Charging Review (TCR), which will make sweeping changes to transmission (TNUoS) and distribution (DUoS) network charging structures from April 2021 onwards.

What is the Targeted Charging Review (TCR)?

Led by Ofgem, the TCR project assesses how residual network charges should be set and recovered in Great Britain. The TCR was launched in 2017 as part of a campaign to create a fairer energy network.

What is the purpose of the TCR?

  • Reduce distortion across the network
  • Ensure that the burden of non-energy costs are more fairly distributed
  • Ensure that network charges are cost-reflective
  • Ensure that network charges are paid by the relevant parties
  • Bring equitability to the network

For example, in the past, companies onsite generation have been able to reduce the amount they pay to use the power system, They have also earned money by helping suppliers avoid BSUoS charges. However, Ofgem says that this distorts the market since it means that other network users end up paying more. 

 When do the TCR changes come into play?

  • Changes to distribution network charges: April 2022
  • Transmission charging changes: from April 2021

What does the TCR mean for businesses? 

Key takeaways from the Target Charge Review charging review are summarised below: 

Charging structures

From April 2021 (effective October 2021), the residual charges element of TNUoS will be moved from Triad demand to a fixed charge based on-site available capacity. 

From April 2022, DUoS charging structure will change to place more emphasis on a fixed charge based on available capacity with a smaller element of time-of-use charging remaining. 

Banding system 

Ofgem has used a banding system to decide on the level of charges, these four bands will be based on site capacity and voltage of connection. 

Preventing triad avoidance 

Triad periods are the three highest winter peak periods, revealed retrospectively, on which the transmission network component of large companies’ power bills are based. By reducing consumption or switching to onsite generation during suspected Triad periods, some firms can shave six or even seven figures off their annual bill. 

The TCR is structured in such a way to ensure that large industrial and commercial (I&C) firms are prevented from avoiding network residual costs as they currently do through Triad avoidance. 

For end-users, the issues are now focused on losing out on load shifting around the red band time of day tariff and from Triad avoidance between November-February each year. However, there are still opportunities for Triad avoidance next winter, 2020/21, because the changes are due to come into force in April 2021.

See details of Ofgem’s decision here.

For more information, please contact your Smarter Business account manager.