Prepare for Increase to Fixed DUoS Charges in April 2024 - EIC Partnership

EIC Partnership

Prepare for increase to fixed DUoS charges in April 2024

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Ashley Game

Insight Analyst

Overview

Distribution Use of System (DUoS) charges are set to increase for most consumers in April 2024 following the large rise in inflation over the last three years.

However, as inflation has fallen in recent months, DUoS charges will decrease slightly in April 2025 in most areas.

The majority of the April 2024 increase will be seen as a rise in fixed DUoS charges.

Whereas, the drop in DUoS charges in April 2025 will be made up of a significant decrease in fixed charges, partially offset by an increase in capacity and unit charges.

Role of DNOs and Ofgem in Setting DUoS Tariffs

The amount of revenue Distribution Network Operators (DNOs) are allowed to collect is determined by Ofgem.

DNOs are required to set their DUoS tariffs 15 months in advance based on this allowed revenue.

The DUoS tariffs for 2023/24 were set in December 2021 when the rate of inflation was at 4.8%.

However, inflation increased rapidly over the next twelve months and had reached 9.2% by the time the 2024/25 tariffs were set in December 2022.

As a result, the amount of allowed revenue for the 2024/25 DUoS year has increased compared to 2023/24, which can be seen in the graph below.

A Graph showing the Increase in Allowed Revenue for DUoS in 2024

Impact of Inflation and Correction Factors on DUoS Charges

Additionally, the amount of revenue collected by DNOs through DUoS charges in 2023/24 was significantly lower than the allowed revenue once inflation had been included.

To account for this, Ofgem allows DNOs to apply a correction factor to compensate for any over and under-recovery in the previous year.

As all DNOs under-recovered in 2023/24, a large correction factor has been added to 2024/25 tariffs, which has resulted in a large increase in fixed DUoS charges from April 2024.

Future Trends in DUoS Charges and Regulatory Adjustments

The rate of inflation fell throughout 2023 and had dropped to 4.2% by the time the 2025/26 tariffs were set in December 2023.

Most DNOs are now forecast to over-recover in 2024/25 due to the drop in inflation so negative correction factors have been applied and allowed revenue has fallen.

There was also a reduction in tax last year after 2024/25 prices had been set.

The effect of this on 2023/24 and 2024/25 allowed revenue has been reflected in 2025/26 allowed revenue.

As a result, fixed DUoS charges are set to decrease significantly in April 2025.

Analysis of DUoS Tariffs and Consumer Impact

The graph below shows that DUoS tariffs in most DNO areas are set to increase by an average of 30-40% in 2024/25.

In contrast, DUoS tariffs will decrease by an average of 15-20% in 2025/26 in most areas.

There are some exceptions to this, most notably Manweb and North West, whose tariffs increase by less than 20% in 2024/25.

As a result, both DNO areas are set to under-recover again over this period, which explains the slight increase in tariffs in 2025/26.

On the other hand, Southern has the largest increase in tariffs in 2024/25 at nearly 70% and is therefore projected to have the largest over-recovery.

This is reflected in 2025/26, where Southern DUoS tariffs fall by an average of 40%.

Change to DUoS tariffs graph

Impact of Access and Forward-Looking Charges Review

There will be an increase in forward looking charges in 2025/26 mainly caused by DNOs setting the customer contributions input to zero in the Common Distribution Charging Methodology (CDCM).

This was done as a result of the Access and Forward-Looking Charges Significant Code Review (Access SCR), which was launched by Ofgem to ensure that electricity networks are used efficiently and flexibly.

This will see capacity and unit charges increase from April 2025, partially offsetting the drop in fixed charges.

Forecast for April 2026 and Beyond

Initial analysis suggests there will be no significant changes in April 2026 as collected revenue is forecast to match allowed revenue.

However, this could change if another large fluctuation in inflation affects allowed revenue or a significant change in consumer demand alters collected revenue.

EIC Partnership's Role in Helping Businesses Prepare for Energy Costs

EIC Partnership can help you accurately budget and forecast your energy prices with confidence with our Long-Term Forecast Report (LTFR).

The LTFR is a valuable tool which illustrates the annual projected changes to your energy bills and calculates your energy spend over the next 5, 10, 15 or 20 years.

This allows you to confidently forward budget and avoid any nasty surprises.

Whilst we can’t prevent the rise of non-commodity charges, we can ensure you are fully prepared for the increases.

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