PRESS RELEASE: STA response to Ofgem’s TCR decision

Solar Trade Association
Immediate Release
21 November 2019

Today Ofgem has announced its final decision on its Targeted Charging Review. [1] The changes will see fixed charges applied to all households and businesses to recuperate residual charges, a segment of network costs [2], and a partial reform to so-called ‘Embedded Benefits’ which will see smaller distributed generators lose out.

STA Chief Executive Chris Hewett said: “Despite their own revised analysis highlighting that these changes risk delaying deployment of subsidy-free low cost renewables, Ofgem are pressing ahead with changes that make net zero harder to reach, not easier. With the urgency of climate change, it is abundantly clear that the regulator’s current objectives are now outdated and absolutely vital that the next government addresses this.”

Set to be implemented in 2021, STA has estimated that partial reform could entail a potential loss of ~£2.5/MWh in additional revenue for solar PV. Whilst less severe than full reform, it will undoubtedly impact on the extremely tight economics for subsidy free solar development. While the STA is disappointed that the prospect of full BSUOS reform remains on the table, we welcome Ofgem’s decision to launch a second BSUoS Task Force to further examine the question of how to fairly allocate the cost of balancing the transmission system.

Consumers are also set to lose an incentive to use less power, as a result of changes to the way residual charges will be levied. Under the current system, residual charges are paid per kilowatt hour used, meaning that consumers inevitably save when reducing usage. The new system will implement a fixed charge for every household and business, which will mean those who have taken action to curb usage, by taking up energy efficiency measures or investing in self-generation, will face higher bills, while users with the highest consumption will see reductions in costs. Whilst Ofgem has landed on a more nuanced approach to addressing businesses residual charges than what was originally proposed, the impact could still be significant.

The STA engaged closely with Ofgem on this, and worked with other leading industry associations to call for a review of all elements of the charging system and for Ofgem to implement any changes simultaneously in order to provide market certainty. [3] In the run-up to the general election, the STA has highlighted amending Ofgem’s remit to align with net zero as a key priority for the next government. [4] [5] The regulator’s mandate, which has not changed since 2011, is completely out of step with the UK’s legally binding net zero target, and it is essential this this is addressed by the next government.

 

ENDS​

 

Editors notes:

[1] Ofgem – Targeted Charging Review: Decision and Impact Assessment: https://www.ofgem.gov.uk/publications-and-updates/targeted-charging-review-decision-and-impact-assessment

[2] Network companies are able to recover a specified amount of network costs from their customer base (this is determined by periodic regulated price controls). Network charges are split into two segments: ‘residual charges’, and ‘access and forward looking charges’. Residual charges are top-up costs which ensure that network companies can recover the full allowed revenue permitted under Ofgem price controls (i.e. to recover building, operating and maintenance costs).

[3] Solar Trade Association – United against the TCR: https://www.solar-trade.org.uk/clean-energy-industry-united-against-ofgems-proposed-network-charging-reform/

[4] Solar Trade Association – General Election 2019: Priorities for the next Government: https://www.solar-trade.org.uk/general-election-2019/

[5] Solar Trade Association – Industry calls for post-election policy drive to match parties’ net-zero ambition: https://www.solar-trade.org.uk/industry-calls-for-post-election-policy-drive-to-match-parties-net-zero-ambition/

 

For further information or to request an interview, please contact:

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Background on the Solar Trade Association:

The mission of the Solar Trade Association is to empower the UK solar transformation. We are paving the way for solar to deliver the maximum possible share of UK energy by 2030 by enabling a bigger and better solar industry. We represent both solar heat and power plus energy storage, and have a proven track record of winning breakthroughs for all three technologies.