The Office of Gas and Electricity Markets (Ofgem) have proposed regulatory changes to the way electricity distribution charges are calculated, significantly affecting most businesses.
The proposed regulatory changes are currently known as “DCP228,” and will be an amendment of the Common Distribution Charging Methodology (CDCM), the system which determines how distribution charges are calculated. These changes are scheduled to be implemented no earlier than April 2018.
Why are the changes being made?
The current system has been criticised in the past, for not correctly reflecting the incremental costs of reinforcing the network. The current system also led to a vast portion of revenue matching falling on the peak “red” time band. The new DCP228 modification aims to scale these charges more accurately, so that charges are distributed across all three time bands (green, amber and red.)
This will be beneficial to some, but disadvantageous to others. In April 2010, when the current charging strategy was implemented, a number of businesses implemented electricity demand management strategies to “load shift” energy consumption from peak times to cheaper amber or green time slots.
Who will it affect?
The CDCM determines how both business and domestic customers, connected at high and low voltages, are charged. Therefore this change in regulation will affect all of these users. However, DCP228 will not change larger electricity connections whose usage is classed under the Extra High Voltage Distribution Charging Methodology.
Electricity used by domestic and commercial properties is owned and regulated by the Distribution Network Operators (DNOs).
For most DNO areas, red band unit rates will fall and amber and green rates will increase. This is likely lead to a net rise for half hourly electricity customers, spreading their consumption throughout the full day and night. Those properties using high voltage connections will feel the effects of the of the changes the most.
It is important to note that red time periods will still be more expensive than amber and green, the gap will just be decreased, meaning that the cost benefit is diminished.
According to Ofgem the changes will have varying affects depending on location and DNO area. The general pattern is that distribution charges for domestic customers will fall, and charges for commercial customers will increase.
How can TED help keep costs down?
All new charges require a minimum of 15 months’ notice period, this means that the earliest possible implementation date is April 2018. The latest DNO rates will be issued in December and that will provide us with a clearer idea of the potential cost implications from these changes. TED will continue to support our clients and monitor this situation, we will advise of any further updates as soon as they arise. Because the changes apply to Common Distribution Charging Methodology, there isn’t much a business can do to avoid alterations in the way energy is being priced.
However, there are ways that you can manage the times in which you use energy more effectively to avoid expensive periods. By monitoring when your business is using the most energy, steps can be made to reduce consumption when tariff rates are at their highest, particularly for high intensive users.
Contact The Energy Desk for more information
If you have any queries regarding these changes, please contact a member of the friendly TED team online.
Alternatively, you can call us directly on 0845 838 9830.