Targeted Charging Review: What It Means for a Battery

What the targeted charging review decided

The targeted charging review (TCR) was an Ofgem review of how the fixed costs of the electricity networks are recovered from users. Those fixed costs, such as the cost of existing cables and substations, are called residual charges. Before the review, a large part of them was recovered through charges that moved with how much and when a customer used power, which meant a customer who cut their use at the right times could cut their share.

Ofgem’s final decision, published in late 2019, was that residual charges should be recovered through fixed charges for households and businesses. The review also set out to remove certain “embedded benefits” that smaller generators had been getting, and the changes were phased in from 2021, with the move to fixed residual charges reported as starting in April 2022. The decision documents are on Ofgem’s site, linked at the foot of this page.

For a business, the practical result is a split in the network part of the bill:

• A fixed residual charge. Industry briefings put residual charges at roughly half of the distribution charge. They are set per fixed charging band, and the band that applies depends on your supply and metering category. They do not change with when you use power.
• Variable charges that still respond to behaviour. The time-banded distribution charges, including the red band, and any charge based on your agreed capacity are separate. Those are the ones a battery can reduce.

What this means for a battery

A battery cannot shave a fixed charge. If a charge is fixed, discharging at the right moment does not change it. Any payback calculation that credits a battery with saving the whole network line on your bill is overstating the case. The part a battery can address is the time-banded and capacity-related element, which our peak shaving guide and the red-band DUoS explainer cover.

Ask which element is which on your own bill. Your supplier or broker can break out the fixed residual charge, the time-banded unit rates and any capacity charge for each meter. Your distribution network operator also publishes its own charging statement, and the rates differ by area. If you are not sure who yours is, see what DNO stands for and how to find yours.

Storage sites were treated specifically. An Ofgem decision on a related industry change (DCP359) said the change removed a distortion in which sites that only store energy could be exempt from residual charges while other generators were not. If you are considering a storage-only site that imports and exports, read the decision document and ask your DNO how the change applies, because the treatment depends on how the site is connected and metered.

How to size a battery on the part it can save

1. Get a year of half-hourly data from your supplier and see how much of your cost sits in the red band and in capacity charges. The half-hourly data guide shows what to look for.
2. Separate the fixed residual charge from the rest. Treat it as a cost the battery will not change.
3. Size against the avoidable part only, then compare the resulting saving with the installed cost ranges on our cost page.
4. Check the tax treatment of the purchase in VAT and capital allowances on battery storage.

The commercial battery storage guide sets out the other value streams, such as arbitrage and grid services, that sit alongside network charge savings. If you would like an independent view on whether storage suits a particular site, send the details through our quote form. We reply by email.

Sources

• Ofgem, Targeted Charging Review: Decision and Impact Assessment
• Ofgem, DCP359 decision
• Smartest Energy, Targeted Charging Review: key updates for UK I&C business and generators (industry briefing, source for the roughly-half residual share)