Proposed TNUoS Charging Changes: Fixed Vs Capacity

Following our latest Non-Commodity Costs Webinar, Head of Pricing, Tom Putney, takes a look at the proposed changes to Transmission Network Use of System (TNUoS) charging, and what this could mean for business consumers.

It’s old news by now that Triads are reducing in value. Since Ofgem’s reforms back in 2017, the value of the TNUoS embedded benefit for distribution connected generators is reducing year-on-year until 2020. There is still a small value in TNUoS, but it will only be a couple of years before the value is reduced to the level of avoided grid cost. In Scotland it will be zero.

Under a different set of proposals from Ofgem, within the Targeted Charging Review, the residual element of TNUoS charges for consumers (the part which pays for sunk costs, such as investment already made in the transmission network) could be charged in a different way. This accounts for between 80%-90% of the overall TNUoS cost on consumer bills.

The two options on the table are for this part of TNUoS to be calculated either through a fixed charge, or a capacity charge:

Fixed Charging:

Fixed TNUoS charges would be set within bands depending on customer size, or more accurately, defined by Line Loss Factor Classes. This would create a number of categories, within which consumers would pay differing rates of TNUoS. Small customers would be charged at one rate, whilst large users would pay a different rate owing to their higher consumption volumes. Under this approach, some businesses might see lower costs than current TNUoS, whilst others might see higher costs for TNUoS, depending upon which segment they were deemed to be in and whether or not they currently Triad manage.

Capacity Charging:

Under this method, TNUoS costs would be worked out based on the maximum amount of capacity that a site’s connection allows it to take from the system. For small users, this would be based on deemed capacity, with banding for domestic consumers and small businesses, whilst large users would have the charge applied to them based on agreed capacities. Under this method, larger consumers will continue therefore to pay more in TNUoS charges as they require more power from the system. Calculating the charges in this way means that there would be no way to reduce exposure to TNUoS charges through Triad avoidance, meaning that larger business consumers who Triad manage would almost certainly see the costs of TNUoS rise. Conversely, large businesses which don’t Triad manage may be better off in relative terms, when compared to the current system. That said, the remaining 10%-20% of TNUoS cost, which accounts for locational elements of the charge, could still be reduced through Triad management.

The good news is that there will be time to prepare for the changes. Ofgem’s latest update on decision timings ruled out the previously proposed April 2020 implementation date. The three options for implementation are:

• April 2021
• Phased implementation between April 2021 and 2023
• April 2023

The final decision on which approach will be taken is yet to be made, but Ofgem did release a ‘minded-to’ position last November, in which fixed charges were expected to be present for some consumers, regardless of whether capacity-based charging is adopted for larger users or not.

For more information on this, and other non-commodity costs affecting end user bills, catch up on our latest webinar here