22 Aug DCP 228 and DCP 161 set to jolt UK business energy costs
As of April 2018, two new energy regulations called DCP 228 and DCP 161 will come into force in the United Kingdom.
Officially titled Distribution Change Proposal 228 for Revenue Matching in the Common Distribution Charging Methodology, DCP 228 will have a significant impact on the calculation of electricity distribution charges – which can make up to 19% of a customer’s bill.
Under DCP 161, consumers who exceed their capacity will be charged an excess capacity rate which could be up to three times higher than the standard rate.
What is DCP 228?
DCP 228 is a mandatory regulatory modification of Distribution Use of System (DUoS) charges that will be instituted by Ofgem (The Office of Gas and Electricity markets, the UK government energy regulator) at the behest of British Gas.
Under the current network tariff scheme, UK energy consumers incur much higher charges when they use electricity during peak periods in the late afternoon, also known as the Red Band (between 16:00 and 20:00).
Once DCP 228 has entered into force, charges during Red Band periods will be reduced, while charges during Amber and Green periods will go up, thereby flattening out the charging structure like this:
Image Credit: PCMG
In theory, DCP 228 is meant to close the gap between charges in each time period, making the Green and Amber Bands slightly more expensive and the Red Band cheaper.
What is DCP 161?
DCP 161 is a change to the Distribution Connection and Use of System Agreement (DCUSA) that will introduce excess capacity penalties for half hourly (HH) electricity supplies.
At the moment, businesses that exceed their negotiated capacity are charged the same amount for the excess energy they use at their contracted rate.
Why is Ofgem changing the way UK businesses are charged for electricity?
Basically, DCP 228 was 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.
According to industry commentators, the fact that the current network tariff structure is heavily weighted toward the early evening period sends the wrong investment signals for distribution companies, who want costs to be spread more equally across the day.
By overstating the peak Red Band rates, British Gas claims that revenues are not related to actual peak conditions, causing the incentive for demand-side management to be higher than it should be.
The motivation behind DCP 161 is to ensure the recovery of added costs that DNOs incur when customers exceed their available capacity (KVA).
According to expert energy auditor Steve Mead, DCP 161 will help DNOs balance network usage by encouraging customers to manage their load more diligently, or to request the right level of capacity. Right now there is little to no incentive for companies to do this, as they are being charged the same amount as their contracted rate for excess capacity.
Who is affected by DCP 228 and DCP 161?
DCP 228 is expected to significantly change the way both residential and commercial properties are charged for electricity, depending on the number of sites and their location in the country.
According to Ofgem, “the general pattern is that distribution charges for domestic customers will fall, but those for non-domestic customers will increase.”
That means that most businesses, especially high voltage customers with a flat load pattern (manufacturers, data centres etc.) can expect to see higher distribution costs on their energy bill.
At the same time, it’s important to note that DCP 228 will not affect customers whose charges are calculated under the Extra High Voltage Distribution Charging Methodology (EDCM), meaning the UK’s larger electricity connections.
As far as DCP 161 is concerned, only businesses using HH meters that exceed their agreed consumption rates can expect to see a dramatic increase in charges.
Remember, thanks to P272 any UK based business that uses more than 100,000 kWh of electricity per year must have HH meters installed as a mandatory requirement.
How will DCP 228 and DCP 161 affect my energy bill?
For HH and P272 consumers, DCP 228 will decrease Red Band and day rate charges, while increasing charges in the Amber, Green and night rate bands.
According to an official Ofgem impact assessment, “two rate (Day/Night rate) consumers would face a small increase in charges” and, “the net effect is that charges for HH consumers in aggregate will rise.”
To take a real life example, consulting group PCMG estimates that a manufacturer connected at high voltage and spending £1 million per annum on electricity could see an annual energy cost increase anywhere from £23,00 to £38,000, depending on their location in the country.
For a commercial property portfolio spending £3 million annually on electricity, a cost increase of £24,000 (Northern England) to £64,000 (London) per year can be expected.
Similarly, the impact of DCP 161 will depend on the region and voltage of your business. Even though applicable rates have not been published yet, costs are expected to rise where capacity demand is higher. If your business regularly exceeds its assigned available capacity, DCP 161 could raise your electricity costs by 1-2%, depending on your company’s energy consumption profile.
Is there anything I can do to avoid extra charges?
If you have invested in load management or demand response initiatives to reduce consumption during the Red DUoS period, it’s important to understand that you may no longer benefit from the same cost savings once DCP 228 is implemented.
Demand response is a strategy that businesses use to curtail energy use to off-peak times (Green and Amber bands), when it’s usually cheaper to use energy. With the implementation of DCP 228, these savings are unlikely to provide the same benefits.
That’s why it’s more important than ever to understand and control how and when your business uses energy throughout the day, not just during peak periods.
This is true whether you have a smart meter or not. Even though HH meters automatically transmit readings back to your energy provider, you could be charged up to three times more if you exceed your capacity limit if have not adjusted it with your DNO beforehand.
The first thing you can do is check your energy invoices to make sure there are no excess charges in the first place. If you do see excess charges, figure out if you can reduce your demand to avoid triggering them.
By using energy management software with monitoring and visualisation capabilities, companies can see exactly when and where they are using the most electricity (peak load tracking) and take action to shift these loads to cheaper times, or use the information to adjust capacity deals with their energy providers in accordance with regulatory changes like DCP 228 or DCP 161.
For those seeking a more active and dynamic energy management strategy, automatic monitoring and targeting (aM&T) solutions can help give customers more control over their energy bills, resulting in greater flexibility to take advantage of regulatory changes and market movements.
If you are an energy manager, check to see what regulatory risks you can eliminate for your customers by gaining a deeper understanding their consumption profiles. Once you understand how and when energy is being used, you can take steps to move usage around. Having all aggregated data conveniently in one place can help identify and optimise these trends.