Utility Week

Utility Week 23 06 17

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

Issue link: https://fhpublishing.uberflip.com/i/839887

Contents of this Issue


Page 14 of 31

UTILITY WEEK | 23RD - 29TH JUNE 2017 | 15 Policy & Regulation Analysis O fgem announced this week that it will push ahead with plans to drastically cut the triad avoidance payments available to distributed generators aer mak- ing a final decision on reforms to embedded benefits, despite peaking plant operators railing against the move. Under the changes, the residual element of the payments will be almost entirely removed over the course of three years. The move stays in line with the regulator's "minded to" decision, published in March. The payments Triad avoidance payments are one of a series of financial advantages – or embedded ben- efits – available to generators embedded within distribution networks. Embedded generators receive the pay- ments for helping suppliers to reduce their Transmission Network Use of System (TNUoS) charges. They are able to do this because they are effectively treated as nega- tive demand during the triad periods of peak demand used to set the charges. TNUoS charges contain a locational ele- ment, which reflects the cost of the rein- forcements needed to accommodate new generation in different regions, and a resid- ual element, which covers the sunk costs of the existing transmission network. The changes At a meeting on 15 June, Ofgem confirmed plans to introduce the code modification put forward by SSE during a working group of the Connection and Use of System Code (CUSC) panel. The panel, which reviews modifications to the rules governing the use of the transmission network, considered 25 different proposals in total – two core options submitted by EDF Energy and Scot- tish Power and 23 variations suggested in the working group. Under SSE's WACM4 modification, the portion of the triad avoidance payments relating to the residual element of the TNUoS charges will be slashed from the current level of around £47/kW to between £3/kW and £7/kW. The new level of the payments is equiva- lent to the avoided costs from reinforcements at the grid supply points where transmis- sion and distribution networks meet, result- ing from reduced demand at the threshold. National Grid previously estimated this fig- ure at just £1.65/kW. The locational element of the triad avoid- ance payments will be unaffected. Ofgem is introducing the reforms because of concerns that the payments are giving an unfair advantage to distributed generators. The residual element was otherwise fore- cast to increase to £70/kW over the next four years. 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. "Our role is to protect customers and make sure costs are kept as low as possible. That is why we are taking action by reducing this payment." The changes will be introduced over a period of three years beginning on 1 April 2018. They will not be grandfathered in, despite the protestations of developers who won new-build contracts for distributed generation in the early capacity market auctions and were hoping for some form of exemption. In an open letter to stakeholders, Ofgem says it announced the final decision to "ensure that commercially sensitive informa- tion is released as soon as possible". "We understand that knowledge of the authority's decision is likely to impact on stakeholders' investment decisions in rela- tion to the financial commitment milestone of 22 June 2017 for the 2015 capacity auction," the letter adds. The regulator says it received 86 responses to the consultation on its minded-to decision. "Since the consultation closed, we have been engaged in carefully considering the repre- sentations made. This has included updating the modelling analysis and other aspects of our impact assessment," it said. The final impact assessment was pub- lished shortly aer the decision. Ofgem stands firm Ofgem is pushing ahead with its controversial cuts to triad avoidance payments. Tom Grimwood reports. " " "We are disappointed that Ofgem has not listened to our fears and chosen to go ahead despite huge political uncertainty, presenting the new adminis- tration with a decision before assessing it against the broader policy background." MARK DRAPER, CHAIRMAN, FLEXIBLE GENERATION GROUP "We welcome the announcement from Ofgem as we believe that reduc- ing embedded benefits in this way creates a more level playing field for all genera- tors, reduces distortion in the market, and also delivers a good result for the con- sumer. FELIX LERCH, UK CHAIRMAN, UNIPER "The decision does not address the heart of the issue, which is Ofgem's approval for the rapid rise in the cost of the transmission network from £943 million in 2007 to £3.7 billion in 2021." TIM ROTHERAY, DIRECTOR, ASSOCIATION FOR DECENTRALISED ENERGY "Rather than looking to the future where the electric- ity system is decentralised, democratised and decar- bonised, this ruling will play into the hands of the big six, who have long been lob- bying against progressive changes." JONATHAN MARSHALL, ENERGY ANALYST, ENERGY AND CLIMATE INTELLIGENCE UNIT

Articles in this issue

Archives of this issue

view archives of Utility Week - Utility Week 23 06 17