Ofgem’s Targeted Charging Review (TCR) has been a major workstream in the electricity industry since it was kicked off in March 2017. Looking at several elements of the network charging regime that were deemed no longer fit for purpose in the changing energy system, it has wound its way towards a climax in recent months, but the start of April saw the first formal delay to part of the programme.
The TCR was primarily motivated by a desire to reduce the distortive price signals sent by the current charging regime, including embedded benefits: negative charges or credits accrued to generators embedded within the distribution network, which were deemed to be more due to the characteristics of the regime rather than the services embedded generators provide. This gave rise to Ofgem deciding in November 2019 that:
- Residual network charges (the element designed to recover the sunk costs of past investment) should be recovered purely from final demand on a fixed basis rather than a unit rate.
- Balancing Services Use of System (BSUoS) charges should be charged on gross demand from April 2021, so that suppliers cannot reduce these charges through contracting with embedded generation.
- The Transmission Generator Residual (TGR) should be removed from April 2021, as it is negative and now having a distortionary effect.
Ofgem had intended reform of residual distribution charges to take effect in April 2022, while residual transmission charges would be reformed in 2021 along with the TGR and BSUoS. CUSC modification CMP332 Transmission Demand Residual Bandings and Allocation was to be one of the main mechanisms for this, but it encountered problems and has now been allowed to slip to 2022.
Already a complex piece of work, the delay to transmission residual charge reform has been driven by the short implementation timescales desired. Parties have been particularly concerned about the lack of notice they will have between the updated charges being announced and them coming into effect, as well as how they can be priced into contracts. While these issues have been known for a while, they were really highlighted in the recent workgroup consultation for CMP332, which prompted National Grid to ask permission to withdraw the modification to give time for further consideration, rather than pushing on for 2021 implementation.
Ofgem subsequently granted this, recognising the concerns about lack of clarity on charges and the timescales involved in changing systems and processes. National Grid has now been tasked with raising a new proposal for implementation in April 2022, which will allow greater time for these issues to be tackled and is to have a particular focus on producing indicative charges to help parties plan ahead.
While a delay has been allowed for this aspect of the TCR, Ofgem was keen that BSUoS and TGR reform are to continue pushing for implementation next year. While it did suggest that the CMP332 delay should make this more achievable by freeing up industry time and resources, it has indicated the entire TCR timetable is being kept under review.
We provide ongoing coverage of all major industry workstreams in our Monthly Regulatory Report, which we have recently reformatted to better home in on the impacts of developments each month. It also includes an issues register tracking each workstream, helping you understand how it developed by putting it in its proper context. For more information contact Steven Britton at s.britton@cornwall-insight.com on 01603 542126.
