Targeted Charging Review (TCR) - Part 2

Following part 1 of our targeted charging review we know that one of the most prominent business questions is what will the impact on business be? Those who have worked hard to avoid the winter triads and other peak costs (red band) through demand shifting and shedding have saved money by reducing consumption at high peak times when the kWh avoided in these time zones is 1/3 higher than other times of day.   Those businesses have helped the Grid in their activities and delivered money back into the business bottom line by reducing energy bills. Some businesses we have worked with have saved over £500k/annum through these activities. From April 2021 this will no longer be available to them – now there is no way to avoid them – they will have this price impact back.

Also those customers who have avoided peak costs with demand side reduction activities (DSR) will suffer. Many used DSR to receive financial incentives in return to generate income and avoid peak and TRIAD costs to reduce their energy bill; they will lose this benefit instantly.

The next impact is regarding a business’s available capacity. Those with the biggest impact from this change are high consumers with large available capacity.

The new TCR fixed price on the energy bill is now based on a businesses currently available capacity today and that capacity value decides which of the four pricing bands a business will be put into. The higher the capacity the higher the pricing band and the higher the fixed charge on the energy bill from April 2021. A businesses available capacity over the last 24-months has been taken by OFGEM as the value to decide which of the four pricing bands they will be entered into and hence the fixed price on the bill.

The issue with this is that over the last few years businesses have been penalised for exceeding max capacity (kVA) so have hung onto it (left themselves some wiggle room) EG 5000kVA on site but peaking at 4000kVA however have kept the 1000kVa capacity should they need in future.

The reason being is that if they surrendered that ‘spare’ capacity then it is difficult to get back and also expensive. So they stored free kVA ability for themselves.  In light of this change by OFGEM then their activities in the past will be detrimental now as that additional ‘spare’ capacity could have put them into the highest of the four pricing bands come April 2021.

It will affect NHH consumers too; but they may see a benefit.

This TCR change also affects NHH customers – whilst the smaller customer has less financial impact and also those who have not actively avoided costs at the peak red band times of day and the winter triads – they may even see a reduction in their overall energy bill.

Therefore, this change is a penalty to those who have been told over the years to actively avoid peak demand costs, help balance the Grid with demand side solutions versus those who haven’t done anything in the past and have never helped the Grid. Penalising those who have been active in Grid balancing activities.

Procurement? We may have a problem

As it stands, as OFGEM has not finalised the pricing bands for the new fixed price, the industry is unable to truly deliver a procurement price for post April 2021. If a business is in an April 2020 contract or an October 2020 contract that spans past April 2021, as prices post April 2021 are unknown, they will more than likely see a change in their contract as suppliers look to recoup losses from the new TCR charging mechanism.

For today, businesses that are in a three-year contract (October 2019) that surpasses April 2021 when this wasn’t on the radar if this is rolled out from April 2021 and the cost mechanisms have changed, the supplier has to recover that and therefore unlock the contract to include the cost within it.  They will maybe have their bill reconciled at a later date, however these are all unknown costs to business.