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Ofgem takes forward sweeping network charging reforms

Josephine Lord Consultant

Ofgem is seeking to implement major reforms to electricity network charging arrangements. Here we look at developments over the last few months. Summary Ofgem’s consultation on its minded-to decision and draft impact assessment for its Targeted Charging Review SCR issued in late November. It closed on 4 February and has already elicited some strong responses. Residual network charges cover the remaining sunk and other costs of running the networks after taking into account the forward-looking network costs that reflect the marginal long-run costs of users’ impacts on the network. Ofgem has put forward two leading options for transmission and distribution residual charges: a fixed charge set for consumers in different consumer segments; or an agreed capacity charge, which would be specific for larger customers, but for smaller businesses and households would be based on assumed levels. It assessed the net system benefits of these changes at £0.8-3.2bn to 2040, and the benefits to consumers as a whole in the range of £0.5-1.6bn (see Figure 1). Alongside these proposals, Ofgem has also set out reforms to the non-locational embedded benefits following its decision in 2017 to phase out the transmission network use of system (TNUoS) demand residual benefit. It has proposed to set the transmission generation residual to zero, subject to maintaining the £2.50/MWh cap on annual average generator changes. This residual is currently negative and therefore represents a payment to transmission-connected generators. Ofgem has also proposed to remove the embedded benefit relating to charging suppliers for ...

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