Ofgem have announced a major regulation change which will impact the cost of your business’ electricity bills and may affect when you use electricity. This new regulation is called DCP 228 and is one of the latest regulations to impact DUoS (Distribution Use of System) charges and will come into effect from the 1st April 2018.
What is DCP 228?
In-order-to understand this new legislation, it is important to first understand DUoS charges. DUoS is one of the largest non-commodity costs and makes up between 17% and 30% of non-energy costs, charges vary depending on location and are paid by the end user via their supplier. The revenue generated by DUoS pays for maintaining and upgrading the substations and power lines that carry electricity from the high-voltage transmission network to businesses and homes.
DCP 228 is designed to change the way electricity distribution companies calculate time of use (ToU) charges in order to improve cost transparency and to better reflect the costs incurred by the network operators.
How is ‘time of use’ currently charged for?
Time of use charges vary depending on your region and the time of day that your business is using electricity. Time of use charges are split into three tranches, represented by Red, Amber and Green band periods (see below example).
There are 14 different DNO’s that all have their own published tariff and each area will have their own red, amber and green charges. Energy used in the red band period is considerably more expensive than green and amber band periods. Each DNO area varies but typically the red band/ peak demand period is from 16.00 to 19.00 Monday – Friday and is the most expensive time to draw down power from the grid. At present, businesses tend to avoid using electricity in this peak time-period and focus usage on the green and amber band periods.
What will change when DCP228 comes into force?
DCP 228 was designed to change the way that electricity companies calculate time of use charges in order to improve cost transparency and to better reflect the costs incurred by the network operators. The DCP 228 legislation will introduce higher charges for the lower band periods of amber and green, (the below diagram represents these changes).
According to Ofgem "non-domestic customers who have invested to move their consumption away from this time will see the reward they have expected through the reduction in their charges lessened or removed.” Whilst this is correct, there is still a reasonable argument to keep out of the ‘red zone’ as it’s predicted that the red band will still be the most expensive time to use energy even though the green and amber zones will increase in cost.
What are the risks to your business?
If your electricity supply is on a pass-through or deemed (uncontracted) basis then you will automatically be charged more if you are using electricity within the green and amber band periods, it’s likely that you will receive no warning and your business will be at the mercy of your supplier and how they choose to deal with this legislation.
What can you do to protect your business from these increases?
In order to ensure that you do not receive any unexpected surprises on your energy bill when the legislation goes live in April next year, it's more vital than ever that you check your Terms and Conditions around fixed pricing.
Unfortunately, even if your electricity contract is watertight it is very difficult to predict any future changes to energy legislation. Our advice to all of our clients is that the only true way to guard against cost increases is to reduce your business' energy usage and to have a good understanding of what you are using when. To do this, it's important to ensure that you have the right type of meter reader/data logger in place so that you have access to your energy data. This will help you to measure and control consumption, manage your business’ load more effectively and to put efficiency measures in place.
In conclusion, the only way to keep energy costs low and to guard against increasing non-commodity costs is to understand your usage and use less.