Targeted Charging Review (TCR) – Everything you need to know
What is Targeted Charging Review (TCR)?
TCR stands for Targeted Charging Review and is an OFGEM initiated legislation that sets out the way that suppliers recoup the costs for transmission and distribution charges.
It comes into effect in two phases:
- The distribution phase is the smaller part of the pricing change which is effective from April 2022
- The transmission phase is the larger part of the change coming into effect from April 2023
How will TCR change the way electricity is quoted?
The way energy suppliers price electricity is multifaceted and is comprised of many charges from wholesale commodity costs, network charges, and legislative levies. The energy rate is also a market where prices fluctuate and commodities can be traded. TCR focuses solely on the network charges, specifically the distribution and transmission which is also known as DUoS and TNUoS
Historically these charges are built into the unit rates and they’re calculated out based on the amount of energy that would be used over peak periods. TCR is looking at this in a different way and banding the costs based on the available capacity of the site.
Why has TCR come into force?
For many years large energy consumers have been able to shift their peak time demand away from peak times through the use of innovative technologies. This has enabled them to avoid paying expensive tariffs during peak periods. This has resulted in unintended impacts on the transmission and distribution system, resulting in a deficit of financial contributions to the network. TCR has been put in place to standardize the way that end users are charged for distribution and transmission to ensure that enough money is recouped in a fairer way.
Who will be affected the most by TCR?
When looking at electricity specifically, bigger electricity consumers will be affected the most because those with half-hourly meters also have KVA associated with their meters which influence the rate of TCR.
How is TCR Calculated?
There is a certain amount of capacity assigned to your half-hour meter. This is called the ‘agreed supply capacity’. That’s an agreement with your local distribution network about the maximum demand (the maximum energy you can take at any half-hour period, at any one time) and is set at a value.
The amount of ‘agreed supply capacity’ in an energy contract determines different banding of charges for distribution. For example, if you have 1000 KVA you will pay more TCR than someone who has 100 KVA.
Can you lower your ‘agreed supply capacity’?
It is common to want to lower your agreed supply capacity but unfortunately it is uncommon to have maneuverability between the amount of capacity you have assigned verse the amount of actual peak use. However, in some circumstances, if there is a big gap between the agreed supply and the usage, for example, if there is at least a difference of 1000 KVA, you may be able to reduce it and avoid the full impact of TCR. Unfortunately, an average of 5 years is often used when calculating these charges so any immediate changes will take some time before they come into effect.
Purposes of Storage
There is one rare exemption to the traditional TCR calculation. If you have a new site solely used for storage so your energy consumption is low due to simply lighting and security systems, but the previous owner/tenet was an energy intensive manufacturer and had high energy consumption, then you may be in a situation where you have a high agreed capacity supply based on the historical consumption data, and you have high TCR charges associated with this. In this situation, you can form an appeal with evidence that you are a new tenant/owner of the site and that your business model and energy usage will be different. There is a possibility that it can be re-evaluated and reassessed and charged appropriately.
Accepting a rise in your energy costs
As most users are renewing their energy supply contracts as normal, businesses need to be aware that this is a factor that will impact the price and to accept TCR and budget for it accordingly. When the energy supply contract renewal occurs, it is not as simple as looking for the best price. Understanding what the quote entails and how TCR is included is important. It is good practice to see what has been forecasted and if additional TCR is charged if consumption goes over those forecasts.
Energy Suppliers presenting TCR costs
There is a vast array of prices from suppliers, and you want to ensure transparency and see TCR costs clearly in energy quotes. This most likely will be standing charges rising and you will hopefully understand it because they are referencing TCR as the reason why. However, be careful of suppliers that have not increased the standing charges but instead have built TCR into the unit rate. This is not an incorrect method of adding in the TCR costs, but it makes it harder to reconciliate. If calculating TCR is volume weighted and is built into the unit rate, if consumption is lower than expected, then the cost of TCR may not be covered. This is why suppliers are most likely to place it into a standing charge.
When deciding on what energy contract is best for your business, you are choosing what element of risk you are happy with. There will be cheaper looking options where you take a reconciliation, or it could be imperative that you understand the exact cost of the quote and it is completely fixed as that’s how you run your business. TCR costs being displayed in the contract cost can fall in either of these options.
Is TCR one more reason to use an energy broker?
There are more and more legislative charges that do get imposed on electricity. Especially with TCR and the way that it’s being priced. The TCR legislation is going from time banded to capacity banded. It should be taken into account when you are reviewing your cost because there are some examples where the difference is significant. It can be difficult to accept that you will have to pay more due to a legislation change, but the information needs to be as clear as possible so you can manage your costs as effectively as possible. A business energy broker can help you understand these costs and policy changes and advise you on what is best for your business.
Keeping up to date on energy legislation
With all new energy legislation, nothing is ever set in stone as changes and updates can be frequent so it is important to keep up to date with the latest energy news. TCR has already had several redactions and statements made from OFGEM and we will ensure you receive the best advice from the latest legislation.
And if you have any questions when it comes to TCR, please contact us or call us on 0203 068 0000