Hello! Welcome back to your course on UK electrical grids.
In our last few lessons, we've focused on the high-voltage transmission network, culminating in understanding how Transmission Network Use of System (TNUoS) charges work. We saw that demand-side TNUoS is about when you use power (the Triads), while generation-side TNUoS is about where you build a power plant (locational signals).
Today, we move down the voltage levels from the national 'motorways' to the local 'A and B roads' of the grid. This lesson addresses the learning outcome: Explain the structure and calculation of Distribution Use of System (DUoS) charges.
These are the charges that every home and business pays for using their local electricity network. We will explore where these charges come from, the different methodologies used to calculate them, and the components that make up a typical DUoS bill.
1. From Transmission to Distribution: What are DUoS Charges?
While TNUoS charges pay for the national high-voltage transmission grid (operated by the National Grid ESO), Distribution Use of System (DUoS) charges pay for the regional, lower-voltage distribution networks. These are the networks run by the 14 Distribution Network Operators (DNOs) that take power from the transmission grid and deliver it to our homes, offices, and factories.
The image below visually separates these two parts of the system and the charges associated with them.
In short, DUoS charges are what DNOs levy on all users connected to their network to recover the costs of building, maintaining, and operating these local grids. These charges are billed to your electricity supplier, who then includes them as part of your overall electricity bill.
DUoS Charging for LV and HV Metered Connections
To begin, let's read a brief introduction from a National Grid guide that explains the purpose of DUoS charges.
Please read the section '3. Charges for Connection and Use of System', focusing on the paragraph titled 'Ongoing charges for use of system'. This will confirm the purpose of DUoS charges and how they are collected.
2. The Calculation Framework: From Revenue to Tariffs
The calculation of DUoS charges follows a clear, regulated, top-down process.
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Step 1: The DNO's Allowed Revenue is Set
The process starts with the regulator, Ofgem. Ofgem determines the total amount of money each DNO is allowed to collect from its customers over a multi-year price control period (the current one is known as RIIO-ED2). This "allowed revenue" is essentially the DNO's budget to run its business, invest in the network, and make a reasonable profit. -
Step 2: Revenue is Recovered Through Tariffs
The DNO then has to recover this allowed revenue from all the users of its network. To do this, it divides customers into different groups and sets specific tariffs for each. This process is governed by two key methodologies.
3. The Two Charging Methodologies: CDCM and EDCM
All DNOs use two standard methodologies to set their charges, ensuring a consistent approach across the country. The methodology that applies to a specific customer depends on their connection voltage.
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CDCM (Common Distribution Charging Methodology): This is used for the vast majority of network users connected at Low Voltage (LV) and High Voltage (HV). This includes virtually all domestic customers, small businesses, and larger commercial sites like supermarkets. The CDCM produces standardised, generic tariffs for different classes of customer.
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EDCM (Extra-High Voltage Distribution Charging Methodology): This is used for a much smaller number of very large energy users connected at Extra-High Voltage (EHV) or directly to primary substations. This includes large factories, data centres, and large grid-scale generators. The EDCM produces site-specific charges that are highly locational.
The SSEN document below provides a high-level overview of this framework.
How are DUoS charges calculated? – Overview
This presentation from Scottish and Southern Electricity Networks (SSEN) outlines the entire process. It can be quite technical, but it's useful to see the official structure.
Please review slides 1-5. Focus on understanding the three-step process on slide 1 and how the Allowed Revenue (Step 1) is then split between the two methodologies, CDCM and EDCM (Step 2), as shown on slide 5.
For the rest of this lesson, we will focus primarily on the CDCM, as it applies to most connections, and then briefly touch upon the principles of the EDCM.
4. Inside the CDCM: The Components of Your DUoS Charge
Under the CDCM, a customer's DUoS charge is made up of several components. For half-hourly metered customers (typically businesses), the charges are designed to reflect how and when they use the network.
A key feature is the use of time bands to signal the cost of using the network at different times of the day.
The main charge components under CDCM are:
- Unit Charges (p/kWh): A charge for each kilowatt-hour of electricity consumed. For half-hourly metered sites, these are split into three time bands:
- Red: The most expensive period, covering the evening peak when the network is most congested (e.g., 4pm-7pm).
- Amber: Shoulder periods with moderate costs.
- Green: The cheapest periods, typically overnight and on weekends.
- Fixed Charge (p/MPAN/day): A daily standing charge for being connected to the network. Every connection point has a unique Meter Point Administration Number (MPAN).
- Capacity Charge (p/kVA/day): A daily charge based on the Maximum Import Capacity (MIC) agreed with the DNO. This reflects the amount of network capacity reserved for that customer.
- Exceeded Capacity Charge (p/kVA/day): A penalty rate charged on any consumption that goes above the agreed MIC.
- Reactive Power Charge (p/kVArh): A charge applied to some customers for poor power factor, which makes the network operate less efficiently. You may recall this concept from our first module.
To explore these components in more detail, please review the following guide.
DUoS Charging for LV and HV Metered Connections
The National Grid guide we looked at earlier provides a very clear breakdown of these different charge types.
Please read section 3, 'Charges for Connection and Use of System' (pages 6-10). Pay close attention to the descriptions of the different tariff groups and the table on page 10, 'Types of charge', which explains each component.
Test your understanding!
A small factory has a half-hourly meter and an agreed Maximum Import Capacity (MIC) of 200 kVA. On a particular weekday, its DUoS tariff rates are:
- Red unit rate: 5.0 p/kWh
- Amber unit rate: 2.0 p/kWh
- Green unit rate: 0.5 p/kWh
- Capacity charge: 1.5 p/kVA/day
- Fixed charge: 50 p/day
On that day, the factory consumes:
- 250 kWh during the Red band.
- 800 kWh during the Amber band.
- 400 kWh during the Green band.
Calculate the factory's total DUoS charge for that day in pounds (£).
Show answer
Let's calculate each component:
- Red Unit Charge: 250 kWh * £0.05/kWh = £12.50
- Amber Unit Charge: 800 kWh * £0.02/kWh = £16.00
- Green Unit Charge: 400 kWh * £0.005/kWh = £2.00
- Capacity Charge: 200 kVA * £0.015/kVA = £3.00
- Fixed Charge: 50 p = £0.50
Total Daily DUoS Charge:
£12.50 + £16.00 + £2.00 + £3.00 + £0.50 = £34.00
5. A Quick Look at EDCM and DUoS for Generators
EDCM for EHV Users
The EDCM is more complex. Instead of generic tariffs, it calculates site-specific and locational charges for very large users. This is conceptually similar to generation TNUoS. The charge is calculated using a Forward Cost Pricing (FCP) model, which assesses the long-term cost that the user imposes on the specific part of the EHV network they are connected to. This sends a locational signal to large industrial users about where it is most efficient to connect.
DUoS for Embedded Generators
Generators connected to the distribution network (known as "embedded" or "distributed" generation) also face DUoS charges. However, because they are adding power to the local network—potentially reducing the need for the DNO to draw power from the transmission grid—they often receive credits (payments) instead of charges.
These credits are often also structured around the Red/Amber/Green time bands, incentivising generators to export power during times of high local demand, which is when their contribution is most valuable to the DNO.
Conclusion
Today, we've drilled down into the charges for using the local distribution networks, a key part of every electricity bill.
Key Takeaways:
- DUoS charges pay for the operation and investment in the regional Distribution Networks, run by DNOs.
- The total revenue DNOs can collect is set by the regulator, Ofgem.
- Most users are charged under the Common Distribution Charging Methodology (CDCM), which uses standardised tariffs.
- A key feature of CDCM is the Red/Amber/Green time-of-use unit rates, which signal the cost of using the network at different times and incentivise off-peak consumption.
- DUoS bills are typically made up of unit charges, a fixed daily charge, and a capacity charge.
- Very large EHV users are charged under the Extra-High Voltage Distribution Charging Methodology (EDCM), which is site-specific and locational.
- Embedded generators often receive DUoS credits for exporting power, especially during peak times.
Preview of the next lesson:
Now that we've covered the core network charging mechanisms (TNUoS and DUoS), we will broaden our view in the next module to look at the commercial structure of the industry. The next lesson is "Describe the liberalization of the UK electricity market and the separation of generation, transmission, distribution, and supply." We will explore how the old, state-owned electricity monopoly was broken up into the different players we see today, setting the stage for the competitive markets we will discuss later in the course.