DCP228 is a major change to the DUoS (Distribution Use of System) charges which is covered as part of the CDCM (Common Distribution Charging Methodology) which has been recently approved by Ofgem on the 8th September 2016, and with the new regulatory charges associated with DCP228 coming into effect from the 1st April 2018.
Energy intensive users have always been aware that using energy during the current red band or peak demand period (typically 16.00 to 19.00) Monday-Friday is the most expensive time to draw power down from the grid.
During winter this period is also when Triads are most likely to occur as the time of day when demand is at its highest.
Well that’s about to change with the introduction of the DCP228 legislation as this introduces higher charges for the lower band periods of amber and green.
Currently these new charging structures only affect Half Hourly profile customers, any existing Non-Half Hourly profileS remains on the current regional charging band methods.
DUoS (Distribution Use of System) charges are levied by the UK’s regional DNO (Distribution Network Operator’s) and have a significant impact on electricity costs. These 3rd party costs support the operation, maintenance and development of the UK’s electricity distribution networks.
DUoS charges are always paid by the end user to the supplier, who will then pass them on to the relevant local DNO.
DUoS charges currently only appear on an energy only contract, or pass through contract, where these costs are itemised as part of a monthly invoice.
Fixed contracts still support these charges, although they are delivered as a fully built up unit price and are not separated out as a separate charging method on the invoices.
DUoS charges are currently split into three separate charging structures and operate on a traffic light system, hence the colours red, amber and green.
The most expensive of these charges that covers the peak time, or highest demand period are called red band DUoS.
Daytime charges are categorised as amber band DUoS, and you guessed it, night time which is the cheapest is categorised as green band DUoS.
DUoS charges are in fact just part of the overall supply picture, however they do account for a large proportion of the non-commodity cost stack. Unlike some other elements of an energy contract these are non-negotiable charges agreed and regulated by the local DNO.
When the current red band methodology was first introduced in 2009, the best way to reduce the impact of these peak DUoS charges has always been traditionally through load shifting, and using less power through the most expensive red band periods.
However in our experience very few industrial and commercial users are actually aware of the existing opportunity of load shifting to avoid these expensive time band periods.
DCP228 Changes to DUoS charges
Some of the UK’s regional DNO (Distribution Network Operators) have slowly started to release details of the new charging structures and evidently to date not all DNO’s are actually increasing red band costs.
New charges associated with DCP228 come into effect from 1st April 2018. For customers with Half Hourly meters the unit charges during the red period will fall.
However, charges during the amber and green charging periods will rise. The expected net result is that costs will increase for LV (Low Voltage) and HV (High Voltage) customers, with HV customers facing the most significant of these increases.
So those energy intensive users who have been working hard to shift consumption away from expensive peak red band periods to minimise DUoS and other peak time based costs will find that these new changes now no longer incentivise off-peak shifts to the same extent.
Some customers will have already agreed to fixed price agreements with their supplier which extends beyond the 1st April 2018 date. Customers who are locked in beyond this period may need to have their contracts unlocked by the supplier to now accommodate the new higher charges associated with the DCP228 legislation.
Or as we have seen with other unplanned non-commodity charges some supplier may choose to absorb the risk and recoup and additional losses at a later date.
As if there wasn’t enough charges already in play, this coming winter (November to February) an additional Capacity Market charge will also start to apply, which is also based on consumption during the same peak demand period of 16:00 to 19:00.
This is another huge risk exposure for organisations that are poorly prepared and have to budget for these pending additional charges. To put this into a financial context, a customer with 1GWh of winter evening peak use could see an additional cost of £200k added onto of the existing charges from 2018.
As well as the increases in DUoS charging and the implementation of the Capacity Market, Triad charges are also set to increase sharply over the next 5-years. Triad charges only apply to half hourly metered sites and relate to National Grid’s transmission network charging system.
The system measures maximum demand readings three times a year (hence the name Triad) and then uses the average of these three readings to calculate TNUoS (Transmission Network Use of System) charges.
These charges are determined between the 1st November and the end of February each year, and historically have occurred between 4pm and 7pm Monday to Friday. Although enhanced awareness of Triads and load shifting has helped to make predicting these events more challenging.
It’s worth noting that the actual Triad periods used may not be the exact three highest periods of demand because each period must by at least 10-days apart from each other.
Reducing your Triad costs is very simple in practice; just reduce your load during these three half-hourly periods. So much like DUoS management it’s essential to understand your on-site interval data, in order to load manage your use and shift energy usage to other time periods or even switch to onsite generation if this is available, to lessen the impact on these charges.
The Capacity Market is also likely to have a bearing on the future Triad times as organisations look to dampen down usage during the historically proven typical time frame for Triad alerts.
The DUoS Time Bands?
The fourteen local Distribution Networks owned by six DNO’s (Distribution Network Operators) take electricity from the National Grid and distribute it to end users. These DNO’s then charge suppliers under regulated and published tariffs for DUoS (Distribution use-of-system) which the suppliers recover from their customers.
What Type of Energy Contract
In this recent article (Why Buy A Flexible Energy Contract) we discussed the benefits of a flexible contract over that of a traditional fixed price agreement, and the freedom to make multiple commodity purchasing decisions at a time that feels right is inherently beneficial to a business.
Little can be done in regards to the non-commodity cost element other than reducing or managing load times more effectively. However business users do have a choice in how these non-commodity elements are charged for and costed.
Fixed price contracts, for a financial risk premium allow these costs to be fixed, but at what price and indeed at what level of guarantee. Faced with yet another unplanned cost, are suppliers simply going to absorb these additional costs, or revoke contract clauses to re-charge customers for these yet un-calculated costs.
Having all non-commodity elements charged at pass through means you only pay for what you actually need at the prevailing market rate. Advance premiums are removed and clear transparent pricing allows for easier forecasting and budgets.
To put it another way why would you pay for something that you don’t currently need, when you can pay for it after you have used it.
DUoS costs are likely to increase further in the future as management of the distribution system becomes more challenging as we move further towards more intermittent power supplies
How Catalyst can help and support your business through DCP228
It’s never been more important to understand and manage your non-commodity costs and reduce your companies risk exposure to these rising and challenging costs.
The key to finding ways to reduce peak consumption is first to understand how your site is currently charged for all non-commodity costs, and the time bands which apply to your business regions half hourly profiles.
Secondly is to understand your future risk exposure and the financial impact these rising costs will have on your business.
Armed with this data you can then set about reducing your exposure to rising non-commodity costs through more intelligent demand management solutions.
Our Catalyst Energy Advantage™ software analyses half hourly interval data and allows us to extract the actual true cost of peak demand periods along with all other non-commodity charges.
We can then model this data set against any future non-commodity charges, presenting a risk exposure profile for the next 5-years. Our forecast analysis module is then continually updated as we review and re-valuate published data onto our own horizon view.
These updates are then automatically pushed out to our customers and immediately accessible through a phone app or web based platform.
Actual data can then be evaluated in conjunction with a site survey from our in house energy services team for any load shifting opportunities and any recommended actions to reduce consumption during peak periods.
These recommendations are linked to a customer’s online profile and present a range of no-cost, low-cost and investment grade solutions which would include:
– A load management strategy
– Demand side response solutions
– Onsite energy generation capability
– Commercial energy storage viability
Reducing exposure to rising non-commodity costs through more intelligent demand management should form part of an overall energy management strategy. Exploring ways to reduce peak consumption makes sound business sense, and will only become more important as non-commodity charges account for a higher and higher percentage of overall energy costs.