Every business faces overheads. Whether you’re a one man band or a multi-national corporation, there are always costs to consider in running your enterprise. But often the larger the organisation becomes the more challenging it is to keep an eye on the detail that can make a significant difference.
The truth is that business energy costs are often a source of significant money wastage. At The Energy Check we spend our working week helping businesses to get a handle on their utility bills and find ways to save money. Often this can be through the procurement of more suitable contracts, at other times it might be installing technologies that can save energy usage across an entire estate. And sometimes it can mean getting to grips with new legislation and ensuring that companies don’t fall foul of hidden costs. Among the key changes to the energy sector coming in 2021 is Ofgem’s Targeted Charging Review (TCR). Here’s what you need to know.
An introduction to the TCR
Under the Targeted Charging Review (TCR), the energy regulator has assessed how residual network charges should be set and recovered in Great Britain. Sweeping changes to transmission (TNUoS) and distribution (DUoS) residual (or sunk) network charging structures are expected from April 2021 onwards, as the current Triad demand system is replaced with a fixed charge based on a site’s available capacity. Under the new system, the focus will shift from measuring capacity based on time-of-use towards a fixed charge based on overall capacity. Four bands will be brought in to decide on the level of charges, based on site capacity and voltage of connection. This structure will help to ensure that large industrial and commercial firms are no longer able to avoid residual costs through Triad avoidance.
What are Triad periods?
Triad periods are the three highest winter peak periods upon which large companies’ transmission network charges are based. Although the dates and times of Triad periods are revealed retrospectively, many firms currently reduce consumption or switch to onsite generation during suspected Triad periods to reduce energy bills.
Historically, this form of energy management has been able to save large businesses hundreds of thousands of pounds each year. However, with the arrival of the new system, this approach will no longer be effective in reducing annual bills. While the pricing structure for the new system is yet to be released, it appears that Winter 2020/21 will be the last opportunity for Triad avoidance savings to be made. A second review is also now underway considering “forward looking” charges designed to provide consumers with pricing signals that will encourage specific consumption behaviour. The details of this review are still unknown, however.
Procurement challenges
Another knock-on effect of the new reforms may be that it becomes harder to deliver procurement prices for the period post April 2021. In fact, it is likely that suppliers will look to recoup losses from the new TCR charging system on contracts that are currently being negotiated.
What can businesses do to manage energy costs effectively?
For businesses that have worked hard to avoid winter Triads and timed charging periods in the past, the focus of energy management efforts must now focus on Agreed Supply Capacity (ASC) with the Distribution Network Operator – otherwise known as kVA charges. From April 2021, available supply capacity will be used to determine the pricing band a business falls into – and therefore the fixed price in the annual bill. This means that it will be more important than ever for organisations to monitor kVA effectively and manage capacity consistently to ensure that they do not find themselves in a more expensive band. Initially, a business’s available capacity will be measured from the last 24 months to establish which pricing band it should be entered into. This will become a fixed price on an organisation’s monthly energy bill until it can be proved that kVA should actually be lower. The TCR changes will also affect Non Half Hourly businesses – although it is possible that many may benefit from the new measures by seeing a reduction in their overall energy bill. Ultimately, the new regulations will bring about a shift in mindset for businesses. Where previously organisations had looked to reduce consumption during particular times of the day and certain times of year, they should now focus wholly on reducing total consumption. This may take the form of energy efficiency measures and controls to identify waste, which makes it possible to lower the fixed price on each bill.
While April 2021 may feel like it is some time away, realistically it does not provide businesses with much time to prepare for these significant changes to the way their utility bills are calculated. By working with our team of energy saving experts you can help to reduce the impact of these changes and ensure that future savings can be maximised and costs kept low.
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