Implications of Ofgems Targeted Charging Review decision

Implications of Ofgems Targeted Charging Review decision

 

Energy analysis: Ofgem has announced its decision following the Targeted Charging Review (TCR), that residual charges will be levied in the form of fixed charges for all households and businesses and to remove liability for the transmission generation residual from generators. Kirath Bharya, associate at Gowling WLG, discusses the implications of the decision for market participants and consumers.

What is the background to the TCR?

The TCR is part of Ofgem’s wider review of network access and charging, which is reviewing how licensed electricity network operators recover the costs of maintaining and balancing their networks. Ofgem is proposing to use the principles of reducing distortion, fairness and proportionality to assess its charging reforms.

Ofgem categorises network charges as either:

  • ‘forward-looking’ charges which are intended to send signals to users about how future network charges will change depending on how they behave. These charges are designed to encourage users to use the networks efficiently
  • ‘residual’ charges which recover the remainder of the costs that are not covered by the forward-looking charges

The aim of the TCR is to reform the residual charges and certain related ‘embedded benefits’. Embedded benefits are the benefits that have been traditionally associated with electricity generating stations that are connected to distribution networks rather than transmission networks. Ofgem believes these benefits are responsible for market distortion, hence the need for reform.

On 28 November 2018, Ofgem published the ‘Targeted Charging Review: minded to decision and draft impact assessment’. The consultation covered reforms on the way in which Ofgem recovers the costs of the networks used to transport electricity. Ofgem then published its ‘Future Charging and Access programme—consultation on refined residual charging banding in the Targeted Charging Review’ in September 2019. In November 2019, it published its ‘ Targeted Charging Review: Decision and Impact Assessment’.

What are the key assessment

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