Ofgem takes next step towards new transmission charging structure

Published on Friday, 04 May 2012 11:25
Posted by Scott Buckler

Ofgem has taken the next step toward a new approach to transmission charging. It is requiring industry to develop changes to the current charging approach which will better reflect the costs placed on the system by all forms of generation, particularly renewable generators, which operate intermittently

The aim of the changes is to facilitate Britain’s transition to a low carbon energy sector at the lowest cost to consumers.
The existing methodology, known as Investment Cost Related Pricing (ICRP), charges generators more the further they are located from demand. The new approach will retain this locational element but update it to take into account the type of generator and how much it uses the network to transmit power. In doing this, Ofgem considers that an improved form of ICRP would better reflect the costs placed on the high voltage system by all forms of generation, including new kinds of generators such as wind farms.


In line with normal procedures, Ofgem is now requiring industry to further develop an improved form of ICRP. Once this work is complete Ofgem will consider the findings and make a decision on the modification.


Overall transmission charges make up four per cent of an average household bill and the cost to consumers of any potential change was a key consideration in Ofgem’s review. Ofgem would expect any proposal to ensure that any changes to transmission costs would have a minimal impact on consumer bills.


In addition to improved ICRP and retaining the current approach, Ofgem also consulted on socialisation which would charge generators the same regardless of location. Ofgem sees this as a much less desirable approach to transmission charging as initial modelling suggests it would result in increased overall costs of £7bn for consumers, exacerbating existing patterns of fuel poverty with no proven overall benefit to consumers.

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