Charging of energy network costs: Ofgem reform

Charging of energy network costs: Ofgem reform

Ofgem, the UK’s energy regulator, as part of the Targeted Charging Review (TCR) has today announced their intention to significantly reform the way network costs are charged to electricity customers. Ofgem’s focus has been on the so-called “residual” charges that ensure the recovery of costs for network owners.  Frontier, in collaboration with Lane Clarke & Peacock, supported Ofgem throughout the TCR process.

 Ofgem was concerned that current charges based on a customer’s consumption of power from the network were more easily avoidable by certain users, for example by using onsite generation to reduce their consumption.  The ability of some users to avoid charges not only leads to inefficient behaviour and investments, but is also unfair to all other customers who as a result pay more. 

 Ofgem announced today they are minded to recover residual costs of the network through fixed charges, which are harder for customers to avoid paying, and based on Frontier’s and LCP’s analysis should result in benefits to the overall electricity system. The changes will also have important distributional effects, which may be broader than simply affecting those who no longer can avoid the charges.  Frontier analysed the impacts for different customer types so that Ofgem could consider the fairness of its preferred approach alongside the expected overall savings.

 Frontier regularly advises both companies and regulators on issues related to network charging.

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