Ofgem’s Targeted Charging Review is responsible for the increase in your high electricity standing charge. In theory, costs have been moved from the unit rate to the standing charge. Although with prices so high at the moment, it is hard to see.
The changes come into effect from April 2022, and many suppliers have already made changes in their pricing for contracts starting from April 2022 onwards.
The price per kWh for your business electricity consists of several different costs. The main costs are the wholesale price of electricity itself (the commodity). And then non-commodity costs, which include transmission and distribution charges from the grid (to your energy supplier), government taxes and levies, energy company profit margin, any other costs and broker commission in some cases as well.
Transmission and distribution charges
These are the costs affected by the Targeted Charging Review. And will be contributing to the high electricity standing charge if you have been asking suppliers for prices. These charges cover the transmission of electricity at high voltages along the network of cables and pylons.
It also covers the cost of building and maintaining the network infrastructure. It is a complex network comprising around 90,000 pylons, 4,300 miles of high voltage overhead lines, and over 300,000 high voltage sub stations where voltage can be adjusted to a level safe to use at home and work.
These costs are billed to energy suppliers by the Distribution Network Operator (DNO) for your region. DNOs include Western Power, UK Power Networks, Scottish Power Energy Networks, to name a few.
How these charges are changing
Historically, energy suppliers have included these costs in the unit price. This is because they are billed per MWh by the DNO. However, Ofgem now want these costs to be charged on a fixed rate according to the band your electricity supply falls into.
For a non-Half Hourly meter (standard meter for smaller and micro businesses), the band will depend on annual consumption held for your meter point on the industry database.
For Half Hourly meters, the band is determined by the Authorised Capacity charge. Also known as Agreed Capacity and is measured in kVA.
As this is now a fixed charge, we are seeing a lot of energy companies moving the costs from the unit rate to the standing charge – which is also a fixed charge.
When energy suppliers first started implementing these changes, it was relatively easy to see the difference. As it was just before the global energy crisis. You could easily see the lower price per kWh and the high electricity standing charge from suppliers who had adjusted their pricing – compared to those who hadn’t.
Unfortunately, with unit rates now 2-3 times higher than previously, it is not so easy to see the changes. Although a low standing charge still around 25-35p per day, would certainly suggest that supplier is still pricing as before.
A higher standing charge should mean that supplier has moved these costs out of the unit rate.
And just to complicate this further, it is entirely up to the energy companies how they pass on the TCR costs. Some may move it to the Standing Charge, others to the Capacity charge (for Half Hourly meters). Others will split it across both. And of course, some may leave most of it in the unit rate.
Can I reduce the high electricity standing charge?
Ofgem believe this will be a fairer way of charging (see below), and the majority of businesses shouldn’t pay more.
For Half Hourly metering though, this is another reason to check your Capacity charge. This is because your allocated band will be based on the kVA allocated to your supply.
Micro businesses with ‘standard’ meters will need to reduce consumption, which may not be so easy.
For example, these are the consumption bands for non-Half Hourly meters:
|Band 1||–||3,571 kWh|
|Band 2||3,572 kWh||12,553 kWh|
|Band 3||12,554 kWh||25,279 kWh|
|Band 4||25,280 kWh||–|
And these are the bands for Half Hourly meters:
|Band 1||–||80 kVA|
|Band 2||81 kVA||150 kVA|
|Band 3||151 kVA||231 kVA|
|Band 4||232 kVA||–|
|Band 1||–||422 kVA|
|Band 2||423 kVA||1,000 kVA|
|Band 3||1,001 kVA||1,800 kVA|
|Band 4||1,801 kVA||–|
|Band 1||–||5,000 kVA|
|Band 2||5,001 kVA||12,000 kVA|
|Band 3||12,001 kVA||21,500 kVA|
|Band 4||21,501 kVA||–|
Looking at the table above with low voltage, Half Hourly metering and a business with an Authorised Capacity of 170 kVA. This puts them in Band 3 (151 – 231 kVA). Reducing the Capacity to 150 kVA or less will move this to the lower Band 2 charges. And therefore lower the standing charge on your electricity bill.
Be careful though. The reduction in the standing charge will most likely not apply immediately, as TCR charges are based on historic years. This may require a conversation with the network operator for your region. We will be happy to help.
Secondly, you should ensure you can reduce the Capacity based on several factors. These include your current peak demand, and any potential expansion in the future. Many businesses may have been holding on to extra capacity for the future. This will clearly cost them in the Capacity charges on their electricity bills, and now also potentially in th standing charge as well. Remember, it can cost a lot of money if you need to increase Capacity in the future, and there is no spare Capacity in your local network to do so.
Unsure if you should reduce your Capacity charge?
Just call us on 020 3372 6517 for advice.
Why are Ofgem making this change to TCR
In a nutshell, very large businesses were able to avoid paying transmission charges on pass through contracts. They did this by powering down during certain ‘TRIAD’ periods or using alternative sources of electricity.
This meant they often paid no transmissions costs at all. But smaller businesses had to bear the cost of larger companies avoiding these charges. Looking at it this way, it should certainly be fairer.
However, you won’t think so if, as a much larger enterprise, you can no longer avoid these costs. Options would be to look at the Capacity charge and the possibility of generating electricity on site perhaps.