Explainer
Ofgem’s Targeted Charging Review changed how the fixed costs of the electricity networks are recovered. Here is what it decided, how the banded residual charges work, the dates and what it means for business energy costs.
By Christopher Fagan, Managing Partner, PEF Consulting Partners
The Targeted Charging Review, or TCR, was Ofgem’s review of how residual network charges are recovered. Residual charges are the part of network costs left after the forward looking, cost reflective charges: in effect, the cost of the networks that already exist. Ofgem’s decision, dated 21 November 2019 and corrected in December 2019, moved these charges onto final demand as fixed charges, rather than charges that change with how much electricity is used or when.
| Customer group | How the residual charge is set |
|---|---|
| Households | One band: a fixed charge per day |
| Non domestic sites with an agreed capacity (LV, HV and EHV) | Four bands each, set by agreed capacity |
| Non domestic LV sites without an agreed capacity | Four bands, set by net consumption |
| Unmetered supplies | Not banded |
| Change | Start |
|---|---|
| Distribution (DUoS) residual moved to fixed charges | 1 April 2022 |
| Transmission (TNUoS) demand residual moved to fixed site charges | 1 April 2023, after Ofgem delayed it by a year |
| Embedded benefits reduced, including setting the transmission generation residual to zero and charging BSUoS on gross demand | From 2021 |
Bands are fixed for each network price control. The transmission residual bands were reset for RIIO 3, which runs from 2026/27 to 2030/31. Ofgem has also allowed some distribution networks to deal with surplus residual charges in particular areas, with a modification taking effect from 1 April 2027.
Our supply capacity optimisation work looks at exactly this.
Related reading: supply capacity optimisation, what Ofgem is and does, energy imbalance and settlement.
The Targeted Charging Review: Ofgem’s reform of how residual electricity network costs are charged, moving them to fixed, banded charges on final demand.
The part of network charges that recovers the cost of the existing networks, as opposed to the forward looking charges that signal where new capacity is needed.
Your band appears in the network charges your supplier passes through, and your distribution network operator can confirm it. It depends on your agreed capacity or, for sites without one, your consumption.
Bands are generally fixed for the price control period, so changing capacity may not move a site until bands are reassessed. Check the rules with your network operator before you act.
If you run several sites, a review of agreed capacities and residual bands often finds money. We can help you work out where.