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Ofgem publishes final decision on controversial Targeted Charging Review

Image: Ofgem.

Image: Ofgem.

Ofgem has published its final decision on its controversial Targeted Charging Review (TCR), confirming that there will be fixed residual charges for all households and businesses and embedded benefits will be reformed.

This confirmation comes after the regulator said that it would press on with the TCR in November, suggesting the decisions confirmed today.

It will levy residual charges on final demand users to make “residual charges simpler and more transparent”, it confirmed. It will then collect the residual network charges using a refined version of the fixed charge mechanism. These will be implemented in stages, with reforms to transmission charges to be introduced in 2021, followed by distribution charges in 2022.

Of the three embedded benefits, two will be reformed. The Transmission Generation Residual charge will now be set at zero, and suppliers will no longer be able to remove their liability for balancing services charges by contracting with smaller generators.

Balancing service charges will instead be recovered on a gross consumption basis, not a net consumption basis. Both of these changes will be applied in 2021.

The third embedded benefit, which allows small generators to not pay balancing service charges, will not be changed directly through the TCR, but instead a second Balancing Services Charges Taskforce will be launched. This will decide who should pay balancing charges and on what basis, and could lead to further reforms in the future.

Ofgem has said that its analysis suggests that the reforms will provide “significant savings to consumers”. It suggests consumers will save £3.8bn to £5.3bn and the system benefit will be £0.8bn to £2.9bn over the period to 2040.

The change to fixed charges will save households an average of £5/year of bills says Ofgem. However, it admits that houses that use the least electricity could see increases of between £2 and £22 a year when the changes have been fully implemented in 2022.

Ofgem has defended the charges and the impact they will have, saying: “We carefully considered the impacts of reforms on vulnerable consumers, but found them to be present in all consumption categories. We think targeted approaches for supporting vulnerable consumers are more appropriate than changes to the network charging arrangements.”

The TCR has been plagued by criticism, predominantly due to concern that it will negatively effect the uptake of renewables. Research in May by Aurora Energy Research found that it could delay subsidy-free renewables by up to five years and wipe 6GW off their pipelines.

Regen’s policy lead Madeleine Greenhalgh accused Ofgem of “passing the buck” with regards to the economic repercussions of the TCR at the Solar and Storage Live event this summer. She suggested that the shortfall of the system cost as a result of the charges being levied by Ofgem could reach £4 billion.

“It’s a massive cost that’s going to need to be made up and Ofgem are saying that the cost will need to be made up by BEIS through the Contracts for Difference," she continued.

The contentious nature of the TCR has seen it delayed, and implementation proposal pushed back.

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