- Publication date
- 28th November 2018
- Closing date
- 4th February 2019
- Policy areas
This is a consultation on changes to the way in which we recover the costs of the networks used to transport electricity to homes, public organisations and businesses. These costs are recovered through two types of charges: ‘forward-looking charges’ which send signals about how much costs will increase (or decrease) with network usage, and ‘residual charges’ which recover the remainder of the costs. We want to ensure that these costs are shared fairly amongst all those who may want to use the electricity networks. We are undertaking a review of residual network charges and some of the remaining Embedded Benefits (discussed below) through the Targeted Charging Review (TCR). This document sets out our proposals for this work.
The need for action comes from the changes in the energy sector. More and more businesses and households have their own generation in the form of solar panels or wind turbines or more traditional types of generation. Electricity storage is becoming more common and we are seeing increased take up of heat pumps and electric vehicles. The existing approach to reflecting the costs of the electricity networks in the charges people pay is becoming increasingly problematic. The rapid pace of changes in energy mean that the issues with the existing charging structure are likely to become worse over time. Ofgem is therefore taking action to address this and to ensure that network charging works in the interests of current and future consumers as a whole.
After undertaking a principle led assement, supported by whole system analysis and wide stakeholder engagement, we have reached a minded to decision and are seeking views on changes to the way in which we spread the costs of the networks that are used to transport electricity to homes and businesses.
We are now consulting on two aspects of change. Firstly, on the best way of setting the transmission and distribution residual charges; and secondly on some of the remaining “Embedded Benefits” – which are different charging arrangements for smaller generators connected to the distribution system (called ‘smaller embedded generators’), compared to larger generators. Both of these are covered by a Significant Code Review where we are establishing the basis for detailed changes to be made by the industry. We are consulting on the direction we will give to the industry next year.
We are now seeking views on our proposals.
We indicated at the January Charging Futures Forum that we would restate the assumptions used for customer numbers for each of the charging methodologies. At CDCM level, a customer is defined using the “MPAN COUNT” as set out in the CDCM model. In practice, this excludes some related MPANs. At EDCM level, a customer is defined at site level. At Transmission level, a customer is defined at site level.
Please see section 3.3 of the frontier report for further details.