Ofgem changes to distribution charges hit invoices this month

When you receive your April electricity invoices in the coming weeks, you’ll likely notice an increase in your distribution charges.

This is because new ways of calculating Distribution Use of System (DUoS) charges came into force from 1 April, because of changes instigated by Ofgem’s Targeted Charging Review (TCR).

The TCR also introduced changes to transmission charges too, but these have been delayed until April 2023.

If you’re at all confused by what these charges are – or why the changes have come about – here’s a quick summary to help provide some clarity.

For extra detail, you can also download our latest ‘Energy Made Simple’ reports demystifying the complex world of non-commodity charges. You can register here to get copies sent directly to your inbox.

Historic time-based charging

Electricity is transported by a transmission network (like a long-distance energy motorway system) that links to a distribution network (the more local A and B roads that bring energy to your business or home).

Historically, electricity network charges for transmission and distribution have been recovered through time of use tariffs, where costs are greater during periods of peak demand (e.g. 4:00-7:00pm on winter weekdays).

The theory behind this was to incentivise customers to better manage their electricity use and take advantage of lower costs during off-peak periods, thus taking the pressure off the network during traditional periods of high demand.

Minimising costs

As a result, larger consumers developed strategies to minimise their network costs by utilising on-site generation, demand-side response, or energy storage, all to reduce consumption at times where demand is being measured to calculate the charges.

However, Ofgem believes these users benefit disproportionately by avoiding network charges, leaving other users who don’t have this capability to pay an increased share of these charges.

This has resulted in Ofgem instigating a Targeted Charging Review (TCR) to reform network charges, which will reduce harmful distortions and ensure charges are fair and proportionate.

Making charges unavoidable

Ofgem’s solution to the problem is to make network charges unavoidable for all.

So, from April 2022, a greater proportion of distribution costs are to be recovered through your fixed charge – rather than a time-associated unit rate – with transmission following suit from April 2023.

As a result, business consumers will see an increase in daily standing charges and a reduction in unit rates.

Each business banded

The specific daily charge your business incurs is dependent on your voltage and then one of four capacity bandings (refer to our earlier blog for banding details).

The band you occupy will be assigned by your Distribution Network Operator (DNO), based on an average capacity over the previous two years. Bands are now set for each site until April 2026, at which point they will be reviewed.

Appeals process

To change bands prior to this, consumption or capacity must differ by at least 50% and you must lodge an appeal with your DNO. But it is worth bearing in mind that if you elect to reduce your capacity, it can be expensive and take a long time to increase again should your needs change in the future.

Accommodating electric vehicle (EV) chargers, switching from gas to electric heating, installing solar, etc can all have a big impact on your capacity needs – so it is worth considering how your business’s electricity needs are likely to evolve.

If you have any questions regarding your distribution charges, get in touch with your Account Manager or Client Lead (existing customers). Or drop us an email at info@npowerbusinesssolutions.com.

And don’t forget to register for our forthcoming non-commodity charges reports, to get the full picture of all the extra charges added to your energy invoices.