Ofgem’s decision to slash the value of triad avoidance payments has been upheld following a failed legal challenge.
The ruling, handed down today (22 June), was welcomed by the regulator, which said it would continue to take action to champion the interests of consumers and “robustly defend its decisions when challenged”.
Triad avoidance payments are one of a number of financial advantages, known as embedded benefits, enjoyed by smaller generators connected to distribution networks.
They receive the payments for helping suppliers to reduce their Transmission Network Use of System (TNUoS) charges, and are able to do so because the electricity they produce is treated as net negative demand during the triad periods used to determine the charges.
The charges contain a forward-looking element, which reflects the cost of reinforcements needed to accommodate individual network users, and a residual element, which covers the sunk costs of the existing transmission network.
In June last year, Ofgem confirmed plans to almost entirely remove the triad avoidance payments relating to the residual element of the transmission charges, which at the time stood at roughly £47/kW and were otherwise projected to rise to around £70/kW by 2020/21.
The regulator said the payments gave an unfair advantage to distributed generators and were distorting the market.
But a group of eight companies led by peaking plant developer Peak Gen applied for a judicial review of the decision in October. The following month they were granted a hearing which took place in April.
Ofgem’s decision was upheld earlier this morning in a High Court ruling.
“Ofgem is pleased that the court has upheld our decision to reduce payments which smaller electricity generators can receive for generating at peak times,” said a spokesman for the regulator.
“This means that energy system costs on consumers’ bills will be kept as low as possible.”
The spokesman said the residual triad avoidance payments cost consumers around £370 million in 2016 and would have become even more expensive without changes.
“Ofgem will continue to take action that is in the interests of consumers and will robustly defend its decisions when challenged,” he added.
The ruling was also welcomed by Citizens Advice, whose director of energy, Victoria MacGregor, commented: “Today’s decision should level the playing field for power generators, resulting in major savings for consumers.
“These loopholes have allowed embedded generators to benefit to the tune of hundreds of millions of pounds by avoiding significant costs, such as electricity transmission charges.
“Ofgem’s decision to change these rules was the right one.”
The claimants said in a statement: “The claimant group is very disappointed in the decision of the court today.
“We continue to believe that [Ofgem] has made a fundamental error in their understanding of transmission network charging.
“We now have a further period in which we can seek permission to challenge today’s decision and we will be considering our options in this regard.”
Residual triad avoidance payments are being gradually reduced over the course of the three years. The cuts began in April after the claimants were denied an injunction to halt their introduction.