Hello! Welcome to your next lesson.
In our last session, we navigated the complex legal and administrative journey of getting permission to build new energy infrastructure. We saw that getting a Development Consent Order (DCO) is a long, expensive, and challenging process. But once a new power line or power station is built and connected, how are the costs of using that grid infrastructure shared among its users?
That's our focus today. This lesson addresses the learning outcome: Describe the purpose and high-level structure of Transmission Network Use of System (TNUoS) charges, distinguishing between generation and demand tariffs.
We'll break down what these charges are, why they exist, and how they are applied differently to those who generate electricity and those who consume it. Understanding this is key to understanding the economics of the UK electricity system.
1. What are TNUoS Charges and Why Do They Exist?
Think of the National Grid's transmission system as the motorway network for electricity. It's a vast, complex, and expensive piece of national infrastructure that costs billions of pounds to build, operate, and maintain.
Transmission Network Use of System (TNUoS) charges are the mechanism used to recover these costs from the users of the transmission system. It’s like a toll paid for using the electricity motorway.
The image below gives a simplified view of the electricity system. TNUoS charges are associated with using the high-voltage Transmission Network, while a separate set of charges, Distribution Use of System (DUoS), applies to the lower-voltage local distribution networks that bring power to our homes and businesses.
To get a formal definition, let's look at the information provided by the National Grid Electricity System Operator (NESO), the body responsible for managing the grid.
Transmission Network Use of System (TNUoS) Charges
The NESO website provides a clear, high-level summary of TNUoS charges.
Please read the introduction and the section titled 'Who does this charge apply to?'. This will confirm the fundamental purpose of TNUoS and identify which parties in the electricity system are liable for these charges.
As the resource confirms, TNUoS charges are paid by:
- Generators that are connected to the transmission system.
- Suppliers (the companies that send you your electricity bill) who pay on behalf of all their customers.
- Directly connected demand customers (very large industrial sites, like steelworks, that have their own connection to the transmission grid).
The key takeaway is that the cost of the national transmission grid is shared between those who put power onto it (generators) and those who take power off it (demand, via their suppliers).
2. The Structure of a TNUoS Charge
A TNUoS charge isn't just one single fee. It's built from several components designed to reflect the different costs of running the network and to send economic signals to users about where and when it's most efficient to use the grid.
A helpful guide from National Grid breaks these components down.
Electricity Transmission network charging
To understand how these charges are structured, let's examine an introductory guide from National Grid.
Please read the section titled 'Transmission Network Use of System (TNUoS) charging'. Focus on the three main ways the tariffs are broken down: the Locational Charge, the Residual Charge, and the Local Charges for generation.
Based on the reading, we can see two main categories of charges:
1. Wider TNUoS Charge (Paid by Generation & Demand)
This is the main charge and it has two parts:
- Locational Charge: This is the most complex part. It varies geographically across the country. The price is higher in areas where it's more expensive to transport power. For example, a generator in a remote part of Scotland (far from demand centres in England) will pay a high locational charge, reflecting the cost of moving their power south. Conversely, a generator built close to a big city might receive a credit because it is helping reduce the need for long-distance power transport. This 'locational signal' is designed to encourage generators to connect where the grid needs them most and large consumers to locate where power is plentiful.
- Residual Charge: This is essentially a balancing charge. After all the money from the locational charges is collected, the residual charge makes up the difference to ensure the Transmission Owners recover their total allowed revenue for the year. It's a non-locational, flat top-up.
2. Local TNUoS Charge (Paid by Generation Only)
This part of the charge is specific to generators and covers the cost of the sole-use local assets that connect their power station to the main shared 'motorway' network. It's broken down into:
- Local Circuit Charge: For the specific power line connecting the generator.
- Local Substation Charge: For the specific substation equipment used by the generator.
3. Generation vs. Demand: Two Different Approaches
While both sides pay TNUoS, the way the final bill is calculated is fundamentally different for generators and for demand users. This distinction is crucial for understanding how the system incentivizes different behaviours.
The Demand Tariff (for Suppliers and their Customers)
Suppliers pay TNUoS charges to the System Operator, and then recover these costs from their customers. The method used depends on the size of the customer.
Electricity Transmission network charging
The National Grid guide also explains how these charges are applied to electricity suppliers.
Now, read the section 'How are suppliers and directly connected demand charged for TNUoS?'. Pay close attention to the different methods for 'half hourly settled' and 'non-half hourly' customers.
As you've just read, the key distinction is:
- Large Demand (Half-Hourly Settled): These are typically large commercial and industrial users. Their charge is based on their electricity demand (in kW) during the three half-hours of the highest overall system demand across the entire country between November and February. These three peak periods are known as the "Triads". This creates a powerful incentive for large factories to reduce their consumption during these winter weekday evenings to lower their annual TNUoS bill.
- Small Demand (Non-Half-Hourly Settled): This covers domestic households and small businesses. The calculation is simpler, based on their total consumption (in kWh) during the peak hours of 4pm to 7pm throughout the year.
In both cases, the charge is based on actual measured consumption during peak periods.
The Generation Tariff
Generators are charged on a completely different basis.
Electricity Transmission network charging
Finally, let's look at how generators are charged.
Read the short section 'How are generators charged for TNUoS?'. Focus on the basis for their charge.
The crucial point here is that generators are charged based on their Transmission Entry Capacity (TEC). This is the maximum amount of power they are contracted to be able to export to the grid, measured in kilowatts (kW) or megawatts (MW).
It is a charge on their potential to export, not their actual energy produced. A power station pays its TNUoS charge based on its TEC, whether it is running flat out or not running at all.
Summary of Differences
This table summarises the key distinctions between the two tariff types:
| Feature | Generation Tariff | Demand Tariff |
|---|---|---|
| Who Pays? | Transmission-connected generators. | Electricity suppliers (on behalf of consumers). |
| Charge Basis | Maximum export capacity (TEC), in ÂŁ/kW. | Actual consumption during peak periods (ÂŁ/kW for Triads, p/kWh for others). |
| Key Components | Locational, Residual, plus local circuit & substation charges. | Locational, Residual. |
| Purpose/Signal | To influence where generators choose to build. | To influence when large users choose to consume electricity. |
Test your understanding!
A large wind farm is being planned in a remote part of Scotland, far from the main demand centres in England. A large car factory is located near London.
- Which party (the wind farm or the factory's supplier) is likely to face a higher locational TNUoS charge, and why?
- Which party's TNUoS bill is based on its maximum potential output (its capacity)?
- Which party's TNUoS bill is based on its actual usage during specific high-demand periods?
Show answer
- The wind farm is likely to face a higher locational charge. This is because it is generating power in an area with lots of generation but far from demand, meaning the power has to be transported a long way across the grid, which costs more. The locational signal reflects this cost.
- The wind farm's bill is based on its capacity (its Transmission Entry Capacity, or TEC).
- The car factory's supplier's bill is based on the factory's actual usage during the three peak half-hours of national demand (the Triads).
Conclusion
Today, we've demystified the charges for using the UK's high-voltage electricity grid. While the details are complex, the high-level principles are logical and essential for understanding the economics of our power system.
Key Takeaways:
- TNUoS charges are how we pay for the construction, operation, and maintenance of the transmission grid.
- They are paid by both generators and suppliers (on behalf of demand).
- The charge structure includes a locational component to signal the cost of using different parts of the network, and a residual component for full cost recovery.
- Generation tariffs are fundamentally different from demand tariffs: they are based on contracted capacity (TEC) and include local connection charges.
- Demand tariffs are based on actual usage during peak periods, most notably the Triad periods for large users.
We have briefly mentioned the "Triads" as the basis for charging large consumers. In our next lesson, we will explore this system in much greater detail, looking at how the Triad methodology works and the powerful influence it has on the behaviour of large energy users across the country.