NESO projection confirms likely step change in transmission costs next year

Key points:

• TNUoS fixed tariffs could almost double for many users from April 2026 as a consequence of increased transmission network investment
• Current NESO projections assume tariffs will continue to rise by over 10% per year until the end of the decade
• However, there are many unknowns in the projections – including:
  ~ Final determinations under the next price control. Note that in previous price controls, final determinations have been higher than draft determinations;
  ~ A wide range of potential revenue scenarios for the Onshore Transmission Owners (ONTOs) due to uncertainty mechanisms etc.; and
  ~ Ofgem-led reform of TNUoS charging and a range of code modifications that could influence how TNUoS is recovered.
  
• This step change in network investment will minimise other costs, such as balancing costs, according to Ofgem analysis.
• Banding thresholds for residual charges will also change in April and energy consumers should check the new thresholds against their own site capacity.

Case study: A low voltage customer

We’ve taken an example of a Low Voltage Site Specific Residual Band 2 customer, with a 109kW capacity and 20% load factor at triad. We’ve applied 2025-26 average peak distribution losses to the average triad charge across the 14 demand regions for each year of the forecast, as well as the current charging year.

Total costs for this user rise 117%, from £2,455/year in 2025-26 to £5,338/year in 2026-27, based on NESO’s 5-Year view. In 2030-31, NESO projects costs to rise 367% compared to 2025-26 at £9,005/year.

As you can see in the following graph, a greater proportion of the TNUoS cost will be recovered through the fixed standing charge. This is because increases in ONTO allowed revenues feed through to residual costs, which are recovered via the fixed charge.

Other customers are expected to see similar increases. Projected rises in the fixed charge between 2025-26 and 2026-27 vary between 70% (Extra High Voltage (EHV) Band 4) and 141% (EHV Band 1).

Changing residual bandings

Customers should also be aware that residual bandings are changing from April 2026, concurrently with these potential cost increases. The residual bands are changed at the start of each electricity transmission price control.

Where changing, most residual bands are going up. This means some sites have the potential to fall into a lower banding and therefore incur lower fixed costs. However, EHV residual banding thresholds move contrary to this trend by falling across each banding. This means that EHV sites could increase a residual band at the same time as prices rise substantially.

For example, we’ve assessed an EHV site with an agreed connection capacity of 4,000kVA. The site could see TNUoS fixed charges increase from £58.7k/year in 2025-26 to £509.0k/year in 2026-27 based on the 5 Year View. This is a rise of 767% in a single year, due in part to increasing from band 1 to band 2.

Electricity transmission price controls

The most impactful input into NESO’s updated projections is the inclusion of revenues from Ofgem’s Draft Determinations document, published in July 2025. This included a consolidated initial view of the allowed revenues for ONTOs in the RIIO-ET3 price control period running April 2026-March 2031. We covered this publication and its implications in a previous intelligence article. The article includes Ofgem’s reasoning for increasing TNUoS to minimise balancing and wholesale costs.

You should be aware that, historically, the Draft Determinations represent a low point in the price control negotiations and the Final Determinations have been typically higher, We expect the final determination for RIIO-ET3 from Ofgem during the winter.

Important caveats

NESO includes a range of caveats in its analysis, including messages directly from the ONTOs themselves.

SHE Transmission (SHET) advised the draft determinations business plan financial model (BPFM) will likely overstate the five-year forecast. This includes £9bn+ of additional reopeners which was not included in the January 24-1 submission due to the high degree of uncertainty on those projects.

This year more than most, the October update (and anything before December) is extremely uncertain and subject to change. Therefore (…)National Grid Electricity Transmission (NGET) do not recommend the use of any forecasts provided before Final Determinations are released, and NGET does not stand behind these numbers, recognising they are subject to change.

It also warns that the financial parameters and mechanics for the RIIO-ET3 period are subject to change between now and final determination in Q4 2025.

NESO includes the impact of other revenue scenarios in the 5 Year View. You can access these from page 54. We’ll summarise these scenarios in our Autumn 2025 Electricity Prices Explained Guide for customers and partners.

Upcoming TNUoS publications

Ofgem is expected to publish the Final Determination for RIIO-ET3 in winter 2025. NESO is due to publish the draft TNUoS tariffs for 2026-27 in November 2025, and the final tariffs in January 2026.

Disclaimer

We’ve used all reasonable efforts to ensure that the content in this article is accurate, current, and complete at the date of publication. However, we make no express or implied representations or warranties regarding its accuracy, currency or completeness. We cannot accept any responsibility (to the extent permitted by law) for any loss arising directly or indirectly from the use of any content in this article, or any action taken in relying upon it.