Ofgem slashes embedded benefits

Ofgem is to slash triad avoidance payments available to sub-100MW embedded generators from the current level of £47/kW to around £3/kW by 2021.

The regulator confirmed its ‘minded to’ decision published in March, which said cutting embedded benefits to distributed generation would prevent market distortion and save £20 per household per year until 2034.

Ofgem has decided to accept an industry proposal to phase in a reduction in the payment to between £3/kW and £7/kW over three years from 2018-21.

The regulator will publish an impact assessment on 22 June.

Embedded generation can receive significant revenues from suppliers to help reduce or avoid Transmission Network Use of System demand charges by generating electricity during three triad periods each year.

Ofgem chief executive Dermot Nolan said: “We are concerned that the current level of the payment is distorting the market and is set to increase further (to £70/kW over the next four years).”

There is around 30GW of embedded generation capacity on Britain’s electricity distribution networks.

Ofgem said around two thirds of the total embedded generation capacity, mainly solar and wind, would not be affected as much as dispatchable power such as diesel generators,

Ecotricity however said previously its 24 wind farms connected to the distribution network would “lose 11-12% of their profits per year” if embedded benefits were removed, while Vattenfall estimates the payments account for around 5% of annual revenues.

Renewable Energy Association chief executive Nina Skorupska said: “This ruthless cut will be damaging to the development of next-generation flexibility and energy storage technologies.

“Additionally, several gigawatts of already installed renewable generation capacity will be negatively impacted.

“This move will clearly benefit larger, incumbent companies compared to the innovative renewable energy players that have burst onto the market in the past decade.”

She added that the decision “flies in the face” of where the market is headed.

“Other nations are actively supporting the deployment of embedded renewable generation and further decentralisation. They see this as leading to a grid that is cheaper, cleaner, and will strengthen jobs and consumers,” she said.

Image: National Grid