Ofgem is consulting on an industry proposal to lower payments by 95% that some embedded generators, including renewables, receive for producing electricity at peak times.
The UK energy regulator said the proposal, which would reduce payments to £2 per kilowatt from the current level of about £45/kW, would reduce costs for consumers by up to £7bn by 2034 and prevent market distortion.
Embedded generators are projects connected to the lower voltage distribution networks and some smaller generators – less than 100MW capacity – can receive payments from suppliers for helping to reduce electricity transmission charges at peak times.
The payments are in addition to the price these generators get for selling electricity.
Ofgem said the current level of payments is distorting the wholesale and capacity markets. “If action isn’t taken now, this distortion will only escalate,” it said.
The proposal would be phased in over three years from 2018 to 2020.
However, the Renewable Energy Association described the plan as a “detrimental, piecemeal step that turns a blind eye to the wider historic changes taking place in the energy market at present”.
It said that small-scale projects would be penalised by the actions, while larger, conventional power stations would be supported.
Moreover, the move would be a “step backwards” for energy storage and demand-side response technologies.
A final decision will be made in May, Ofgem said.
Image: Ofgem
