Analysis warns Ofgem’s Targeted Charging Review could set renewables back five years

Ofgem’s Targeted Charging Review (TCR) could slow down the build out of unsubsidised onshore renewables and could lead to a 6GW reduction by 2035.

The governments Targeted Charging Review (TCR) was launched by Ofgem in 2017. It proposed a wealth of changes to the way network costs are recovered. They were concerned that the current charging regimes are being exploited by generators, making it unfair to other system users.

The TCR proposes ways in which generators who are connected to the grid will have some financial benefits cut, and others could even see benefits flipped over into charges instead. The Ofgem website states that,

“The need for action comes from the changes in the energy sector. More and more businesses and households have their own generation … The existing approach to reflecting the costs of the electricity networks in the charges people pay is becoming increasingly problematic … issues with the existing charging structure are likely to become worse over time. Ofgem is therefore taking action to address this and to ensure that network charging works in the interests of current and future consumers as a whole.”

Some of the proposed changes include introducing fixed charges, so to create a more even marketplace between those users who are flexible and those who are inflexible. There is also a plan to revise the way in which the Transmission Network Use of System charges are paid. Currently these are shared between consumers and generators, but the proposals suggest that these costs fall entirely to the consumer.

Ofgem’s own impact assessment found thatrenewables deployment would not be affected by these changes, but a recent studyfrom Aurora Energy Research did not agree. Their research says that the changes would‘damage the economics’ of renewables such as onshore wind and solar. They saythis would happen thought removing embedded benefits, imposing new balancingcharges on them and reducing overall revenue.

Some of the key concerns were that theproposals would encourage inefficient investment in ‘behind the meter’generation. Generation that is connected to the grid would receive a negativeresidual charge, creating distortion between embedded and transmissiongeneration.

The research predicts that deployment ofsolar would be 5GW lower by 2035 than is currently planned, while onshore windwould be 1GW lower. Weijie Mak, project leader at Aurora, told Business Green that,

"Ouranalysis suggests they would negatively impact the deployment of renewables -holding back subsidy-free deployment by two to five years and undermining theachievement of decarbonisation targets."

Furthermore, Aurora predict that if the capacitymarket is reinstated without major changes, CM prices will have to rise bybetween £6 and £12 per kW in order to make up the shortfall caused by the TCR.

This isn’t the first time that the TCR hascome under fire for undermining renewable developments. A separate study by economic consultancy Oxera concluded that elements of the reformswould impact on the economic viability of onshore renewable energy generation.

Their report showed that costs to consumerscould increase by £1.3bn under Ofgem’s baseline Future Energy Scenario betweennow and 2040. It also said that the TCR could have a negative impact ondecarbonisation efforts, suggesting it would raise CO2 emissions by 0.56mtonnes.

The Oxera study was commissioned by energyfirms including RES, ScottishPower, Vattenfall and Innogy. The results have ledto a call for Ofgem to further assess their controversial proposals before puttingthem into practice.