Changes to electricity distribution charges will bring a greater need for energy monitoring and targeting to protect businesses from price hikes by increasing the focus on energy optimisation at all times moving the focus from the weekday peak period. DCP 228 is an Ofgem approved amendment to electricity distribution charges and will take effect from April 2018. Since 2010, the Distribution Network Operators (DNOs) have recovered costs for managing the local networks through a triple-tiered, Red-Amber-Green, time-based structure heavily weighted towards the late afternoon red period. This methodology ensured a consistent approach across DNOs and created financial incentives for consumers who could manage their demand to reduce peak consumption.
However, the methodology overstated the peak ‘red’ charges as it included revenues that were not related to peak conditions. This had led to customers who utilise the incentive to manage demand by lowering usage at peak times being over-compensated whereas those who are not able to do so are paying more than necessary during this period. With the rise in smart assets, energy storage technologies and a more diverse generation mix, the incentive has become unsustainable.
In addition the Government plans to change the role of a District Network Operator (DNO) to that of a Distribution System Operator (DSO) to actively managing the flow and balancing supply and demand of power on the local networks. As such, the distribution charging mechanism will have a key role in supporting the move to a smarter, more flexible grid.
The amendment realigns the amount of scaling in the Common Distribution Charging Methodology (CDC) meaning the gap between charges in each time period will be reduced, making the green zone more expensive and the red zone cheaper. It is anticipated that domestic and single-rate non-domestic customers (profile class 03) will see a reduction in distribution costs. Half-hourly business customers are likely to see a rise in costs on aggregate with the greatest increase borne by high voltage sites and those with high baseload or night-time consumption.
There is concern that this change reduces the incentive to manage demand at peak times however the aim is to create opportunities to reduce consumption throughout the day and boost investment in optimisation techniques. The opportunities arising for improved on-site energy reduction projects, particularly when informed by smart data from the increased availability to half hourly meters are significant, particularly when combined with an effective purchasing strategy. It is therefore important that all businesses review their current energy strategy and put effective monitoring and targeting in place to realise savings from effective energy management and reduction.
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