In November 2018 Ofgem opened a consultation on changes to the way in which it recovers the costs of the networks used to transport electricity to homes, public organisations and businesses.

In response to the consultation, energy companies Innogy, RES, ScottishPower and Vattenfall asked Oxera to review the analysis on which Ofgem had based its proposed Targeted Charging Review reforms. Specifically, we were asked to evaluate Ofgem’s impact assessment relating to the prospective Transmission Generation Residual and Balancing Services Use of System reform, with a view to assessing the impact of the reform on consumer bills and on the UK’s ability to meet its legally binding decarbonisation targets.

Our evaluation of Ofgem’s impact assessment found that the reform could have an adverse impact on the economic viability of renewable generation technologies: potentially increasing the costs to consumers by as much as £1.3bn–£7.6bn and the costs of the energy system by as much as £168m–£879m, depending on which of Ofgem’s scenarios is assumed.