As expected, under its Targeted Charging Review (TCR), Ofgem plans to scrap the current Triad system within the next few years – its ‘minded to’ position is to introduce fixed charges to create a level playing field between those flexible users able to reduce consumption during peak periods to minimise costs and those with a lack of flexibility who are left paying a higher price.
The current charging system could be replaced as early as 2020 but is more likely to be on or after April 2021 (or phased in between 2021 and 2023), giving users at least one extra winter to benefit from load management and reduced network costs. Whilst Ofgem believe those users able to reduce load are benefiting at the expense of other businesses and households, large energy users who currently reduce demand when the Grid is under the most strain have argued that they play a valuable role in keeping the system balanced by making a tangible dent in the nation’s electricity demand.
Another change that we will see is that the Transmission Network Use of System (TNUoS) charges are currently shared between consumers & generators (with the majority paid by consumers). In the future 100% of these charges will be paid by consumers – this will increase the TNUoS bill for consumers but will reduce the cost of producing electricity for power stations, so should result in lower wholesale electricity prices – overall Ofgem expects this to be fairly cost neutral for consumers.
What is Ofgem recommending?
There are two options being considered as the Triad replacement: Ofgem’s preferred fixed charge option, which could mean neighbouring businesses pay the same rate regardless of consumption, or an agreed capacity charge, where businesses would agree a contracted capacity with their Distribution Network Operator (DNO).
There are some big questions around the proposed ‘fixed charge’ option – particularly around how to stop people using as much capacity as they want. Ofgem’s upcoming Network Access Review (NAR) will address this, but this consultation isn’t scheduled until 2020. An overview of the NAR is excepted to be published before Christmas, which should give an indication of what Ofgem is planning to do. Combined, the TCR and NAR should provide business energy users with the full picture of how network charges will be determined.
What does it mean for business energy users?
The true impact of TCR changes won’t be clear until more detail is provided on the Network Access Review and the final decision is made on which charging option will be selected.
Those businesses who currently benefit from reducing load during peak period will almost certainly see their network charges rise. However, these users could still take advantage of their flexibility to benefit from other Demand Side Response opportunities. Embedded generators will also see their revenues reduced by the proposed removal of more embedded benefits: following changes introduced last year, Ofgem is also proposing to change the current BSUoS benefit to a charge for embedded generators.
Is Triad avoidance dead?
The proposed changes aren’t expected to be introduced until April 2021 at the earliest, so businesses can still benefit from load management over the next two winters. However, it may be prudent to reconsider any investment in Triad avoidance if the business case for it is changing.
The best action any business can take to mitigate the impact of the TCR is to focus on absolute reduction. With ESOS Phase 2 on the horizon, organisations should have an updated list of recommendations and actions to reduce consumption by the end of 2019.