As many of you will know, the costs that you see on your electricity bills are made up of numerous components, with the actual electricity itself being around 40%. Significantly, amongst the other components is the use and maintenance of the transmission network, which gets the electricity from the power stations to your buildings.
Historically, whilst everyone pays towards this, the cost recovery has been placed on users who have the greatest demand during peak times in winter which is when there is most strain on the network. It has been customers’ use during these peak periods that determines their transmission costs and these are passed from the network operators directly to the suppliers to recover from you, the customer. Most contracts will roll these costs in to the standard unit rate so that you pay the same rate each month, but in reality, under this structure, the costs to the suppliers are heavily weighted to winter.
Developments over recent years, such as load management and the use of on-site generation, has seen users make substantial reductions in this peak demand use. This has been so successful that the network operators are now concerned that they are not bringing in enough money to cover their overheads.
In order to tackle the above concerns, Ofgem has developed a new pricing structure, Targeted Charging Review (TCR), which is being introduced in April 2022 and is designed to recover costs more fairly across everyone who uses the network.
TCR will introduce fixed banded prices, determined at the end of 2020 and based on annual usage for domestic customers, and supply voltage and Available Capacity for larger customers. This will mean that consumers of a similar type in the same geographic area will pay the same charge towards network costs and this will be recovered in 12 equal monthly instalments. Peak winter demand is no longer a factor in determining the costs. Whilst full details of the pricing structure are yet to be finalised the aim is to increase the overall income, so clearly some customers will be paying more, but many will be largely unaffected and there will also be some customers who are better off.
How will TCR affect me?
From all of the industry information available at the moment, we expect that over 95% of our customers will not be significantly impacted by TCR. Those that will see an increase will generally be the larger individually metered customers whose supply is High-Voltage or Extra-High-Voltage and whose Available Capacity is above 600kVA.
Suppliers are adapting to the new charging process themselves and over the last few months they have used different approaches to address it. Most have included it as a £/month fixed charge whilst others have included it as a p/kWh or £/kVA charge – you will have been advised of your specific structure. For those of you that have renewed in this timeframe, we will have advised you of the structure of your contract at the time.
Customers whose electricity contract was agreed before TCR and runs beyond 31 March 2022, may receive an additional pass-through charge from their supplier to cover the supplier’s costs during the transitionary period.
Most of our customers’ contracts are fully fixed and will be protected against this, but for those that aren’t, you may see a one-off payment in April 2022 to cover this, with costs from April 2022 onwards being based on the TCR method of recovery.
We are talking to suppliers to minimise, or even remove, these costs where possible, and your Relationship Manager will be able to advise you about your individual situation nearer the time once all parameters are in place.
We have compiled a list of frequently asked questions to help clarify how you may be affected – Click here to view.