But what exactly does it mean for your business? In this post, we’ll aim to clear things up when it comes to Ofgem’s Target Charging Review and how it will affect you as a commercial customer.
Ofgem – the government regulator for UK gas and electricity markets – launched their Targeted Charging Review (TCR) to assess the way companies work out your quote. It looks specifically at the non-energy costs which are incorporated into all energy prices, broken down into:
These costs include a residual charge, which refers to the cost of maintaining the electricity network. They also include a forward-looking charge, which covers the cost of expanding the network.
In the TCR, Ofgem was specifically looking at the residual charge, which accounts for 90% of transmission charges and 50% of distribution charges.
At present, the residual charge is built into your unit rate. That means that the more energy you use, the more you will pay for the residual charge. However, in their 2019 TCR decision, Ofgem outlined that network operators should instead charge suppliers a fixed amount for each of their customers’ sites.
From April 2022, customers will be put into a category based on the size of their site. Similar sites will then pay the same amount towards maintaining the network. However, there are actually two ways this could affect the price depending on how your supplier passes that charge onto you.
Many suppliers will incorporate the residual charge into the standing charge, adding a fixed amount to the base cost of your energy bill. The result would be a higher standing charge with a lower unit rate.
Alternatively, they could add it to the unit cost for your energy. This method will have less of an effect on your existing energy contract. But it could result in unexpected costs further down the line if the cost isn’t accurately factored into your unit rate.
Another way Ofgem’s TCR could impact your business is through the transition charge. As well as changing the way residual charges are calculated, network operators are also changing the way they’re charged for half-hourly customers. In short, these are larger sites with an electricity meter that measures data every half an hour.
At present, residual charges are calculated in the winter months, with suppliers paying for the entire year from November to February. From April 2022, they will be charged monthly across the entire year. This will affect any half-hourly customers who have a contract which overlaps the two financial years.
If your contract renews in April 2022, you won’t be affected by this. However, if it renews any time before that, you will have to pay the ‘transition charge’ – whereby both the old winter charge and new monthly charge are incorporated.
Again, the way this affects you depends on your supplier. It may be spread across the year with a higher monthly quote to cover the transition charge. Or it could be charged as a one-off cost.
While it’s good to be aware of it, Ofgem’s TCR covers changes to your energy bills that are largely out of your control. What’s not out of your control is your energy usage. That’s where the Energy Saving Opportunity Scheme (ESOS) comes into play.
At Volta Compliance, we provide comprehensive ESOS assessments that can help you reduce your energy output. Our experienced electricians will undertake a full energy audit before creating a strategy with recommendations to minimise energy consumption and cut your bills overall.
To find out more or book your ESOS assessment, give us a call on 0113 397 1361.