Explaining the Targeted Charging Review (TCR)

Explaining the TCR

We all pay towards keeping the UK’s energy network running

Both homes and businesses contribute when they pay their electricity and gas bills. These contributions come out of energy users’ unit rates and standing charges.

They’re made up of a few different costs, including:

• payments for the upkeep of the energy infrastructure
• transmission charges (the cost of transporting the energy you need from the generator to your local distributor)
• distribution charges (the cost of transporting the energy from your distributor to you)
• balancing services (the pot of money that National Grid uses to ensure it doesn’t have either too little or too much energy available to meet national demand)

Ofgem has been reviewing how much each business should pay toward this

They aim to make sure that each business pays an appropriate amount, according to how much energy it needs to operate. To do this, they sometimes change how the industry calculates each business’ contribution.

Before the TCR, this calculation factored in how much energy a business uses when national demand for energy is high (normally 4-7pm on weekdays). The less the business used in these periods, the less money they’d pay towards transmission, distribution and balancing charges.

Some large sites with flexible usage realised they could monitor national usage trends to predict when these peak demand times would happen. They’d then use this information to avoid consuming energy during these periods.

This meant they weren't paying their share of costs. So, other businesses had to pay more to make up for it.

In response, the TCR has changed what businesses pay towards these costs

Through this review, Ofgem aims to spread costs proportionally across all customers. They hope it’ll stop some high-capacity businesses from not paying their share.

Specifically, the industry will calculate three main elements of standing charge differently from now on. Distribution charge changes came into effect in April 2022. In April 2023, changes to transmission and balancing charges followed suit.

This table summarises these changes. See below for a further explanation of each section.

Understanding what this means for you

Transmission cost amounts are changing

This new method works out a businesses’ contribution based on their size and meter setup.

This table shows how the new cost calculations vary for different businesses:

These changes will affect different customers in different ways

Overall, standing charges will increase in the short term. This is particularly true for businesses that used to monitor trends and change their usage times accordingly.

But, these short term costs should give way to long-term benefits. For example, your energy rates won’t include generators passing on their balancing services costs anymore. So, they should decrease.

Ofgem has created these bands to determine each business’ new costs. Each business fits into one, according to their meter setup and usage levels.

For businesses that don't have ASCs

For businesses with ASCs

If the changes affect you, we’ll tell you your new rates

If you’re on a fixed contract, your charges will stay the same.

If you’re on a variable contract, we will factor these changes into your price change on 1 November 2023.

If you’re signing up a new contract or taking out a renewal, your new rates will incorporate these changes.

FAQs