In April 2016, the tariff system used to charge power companies for using the GB transmission network will change. Andy Wainwright, National Grid’s Electricity Charging Development Manager, explains what the developments mean for the industry.
“The new charging methodology has been designed in a way that better accounts for how generators use the transmission network. It will also more accurately reflect the way we design and invest in the network in future.”
Andy Wainwright, Charging Development Manager, National Grid.
April 2016 – the date the changes will be introduced across the network.
Source: National Grid.
Why is the tariff system changing?
Ofgem asked us to develop the methodology we use for charging companies connected to the transmission network as an outcome of its wholesale review of transmission charging arrangements. Our solution, developed collaboratively with industry stakeholders, was approved by Ofgem in July this year and will be implemented by April 2016.
How does the current system work?
Electricity generators and suppliers pay transmission charges to National Grid, Scottish and off-shore transmission owners. The cost varies in different areas of the country. Take, for example, those electricity generators located far away from densely populated areas like London and other big cities. These pay a charge based on the fact that their energy is being transported through more of the transmission system. Similarly, electricity suppliers who have customers in areas of excess generation pay lower charges.
Who is responsible for setting the charges?
Ofgem agrees with the transmission companies how much revenue they should receive, as part of regulated price control settlements. National Grid then recovers this revenue through an agreed charging methodology. Any industry party, such as a generator or electricity supplier, can propose a change to this methodology, but in the end, all changes need to be approved by Ofgem.
What changes will be introduced?
The new charging methodology has been designed in a way that better accounts for how generators use the transmission network. It will also more accurately reflect the way we design and invest in the network in future.
One way we’re doing this is by introducing a tariff component linked to how often a generator uses the system. In other words, we’ll charge less for generators which run infrequently during the year. At the same time, we’ll take into account those regions where a particular generation technology is dominant, recognising the fact that more transmission systems will need to be built in these areas.
The new methodology will also detail how we charge for new transmission technologies, namely high voltage direct current circuits and island connections, both of which use sub-sea cable technology. That way, existing generators and future developers can plan ahead with more certainty.
What will be the effects of the changes in the short-term?
The changes will only re-balance charges for generation users, so there will be no significant impact for the end consumer. In the long-term though, the new tariff methodology will help power companies better account for the cost of transmission. This will in turn mean a more efficiently developed transmission system that will benefit consumers in the future.
What are the next steps?
The April 2016 date gives our customers clarity around when the new methodology will be in place. It also allows them to account for any changes in their operations. We have already prepared forecasts of future tariffs for our customers as part of our Condition 5 Forecast. Between now and April 2016, we will be making sure that we put in place the changes across our billing systems successfully while continuing to keep customers up to date with our latest charging forecasts.