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The Targeted Charging Review: What does it mean?

What is the Targeted Charging Review (TCR)?

The Targeted Charging Review (TCR) has been carried out by Ofgem to assess how residual network charges should be set and recovered in Great Britain as the energy network continues to evolve.

The key driver of the review is the changing role of energy networks. Due to the widening dispersal of energy generators, with more individuals and businesses generating electricity on-site, it was seen as a necessity by Ofgem to rework the way charges are levied against energy users, to make the system fairer for all, and fit for the future.

As it stands, organisations that have invested in technology such as energy storage can minimise the charges for using the energy system, through avoiding consuming energy from the grid during the peak periods such as Triads, upon which the changes are based. This, according to Ofgem, is distorting the market, allocating the costs of maintaining the network unfairly.

What are the findings?

The core change of the decisions reached by the TCR, is that charges will move from being residual, directly linked to energy consumption, to fixed charges, banded by voltage level.

There is reform to Balancing Services Use of System (BSUoS) charges too, with suppliers no longer able to remove their liability for balancing charges with embedded generators, charges will be recovered on a gross rather than net consumption basis. The embedded benefit which exempted small distribution generators from paying balancing services charges will be looked at by a Balancing Services Charges Taskforce.

The implementation of these charges will be staggered, and Ofgem’s current timeframe is for the first changes to be made in April 2021. Whilst this is a step change from the current way charges are calculated, it is worth noting that forward looking charges – those that are created to promote the changing of behaviour – are still under review, which many groups in the associated industries believe will see revised incentives brought in for energy technologies that support the grid such as storage and renewable generation.

What are the general implications?

Ofgem’s central driver for the review was making the systems fairer for all, and they believe the move to fixed residual charges will see costs spread more fairly. As a result of this, consumers are in line to save as much as £300 million per year from 2021 due to the redistribution.

The implications for businesses are difficult to define at an overarching level due to the nature of the changes, which will affect users in different ways depending on their assets and infrastructure, and energy consumption level.

Put simply, the banded charges removing the direct link to consumption will mean that those placed at the higher end of a band will benefit from the fixed charge, and those at the lower end may end up paying more. At present, the boundaries of the bands are currently only indicative, and when the new charges come into force, placings will be reviewed every 5-8 years, in line with charging reviews.

What will it mean for existing owners of battery energy storage?

The implications of the review for owners of battery energy storage systems (BESS) will vary depending on the way the system is used, and which other integrated assets, such as onsite generation, are present. Whilst changes from the TCR come into effect from 2021, and the conclusions of the forward-looking charges review may yield opportunities, BESS owners continue to benefit from the broad range of applications, including renewable firming, capacity market participation, firm frequency response, and arbitrage.

The review has been carried out to address the changing nature of the grid, which is likely to see the need for, and use of BESS rise in the coming years due to the expansion of EVs, and the associated charging needs, and the growth of renewable energy generation, particularly smaller plants. The energy flexibility and power resilience that BESS provides will continue to enable optimisation, and protection of power supply for businesses.

What will it mean for new battery energy storage owners?

For new/prospective users the impact of the TCR is very much the same as for existing users. Whilst the details of the business case will change somewhat with the reforms to the charges, due to the broad range of functions energy storage has, from renewable firming to power resilience, it will still be a highly advantageous project for most as an asset helping businesses to achieve energy targets and enable an optimal use of energy flows.

The forward-looking charges review is likely to see new opportunities emerge, although it is not known what shape they will take, and regardless of charges and incentive changes, the need for energy flexibility will become greater in coming years to accommodate the growth of renewable energy generation, which is needed to achieve environmental targets.

How does it impact Powerstar’s offering?

Powerstar VIRTUE will still be available as a bespoke product that can form a crucial part of complete energy solutions, helping to improve energy efficiency, flexibility, power resilience, provide actionable insights, and assist in carbon neutrality.

Powerstar’s energy industry experts plan projects and build proposals that ensure the smart energy optimisation system (EOS), which intelligently and automatically prioritises activities of BESS, provides the optimal benefits from the asset to achieve energy goals, and futureproof energy strategy.

Find out more and see how you could benefit from battery energy storage

Battery energy storage systems can help fulfil a range of energy objectives for businesses, non-profit, and public sector organisations, including energy efficiency, energy flexibility, power resilience, and assisting organisations work towards net zero. Powerstar’s VIRTUE energy storage system has integrated remote monitoring to provide accessible performance information and enable continuous improvement.