Intergen has slammed a recent decision by Ofgem to refuse a £120 million rebate on transmission charges for generators.

The company says the ruling will increase costs for consumers, discriminate against domestic transmission-connected generation and undermine investor confidence.

An EU directive limits annual transmission charges for generators to €2.50/MWh. However, some have argued that the charges for 2015/16 exceeded this cap.

Transmission charges are paid on both generation and demand and are split between forward-looking charges, which reflect the individual impact of users on network costs, and residual charges, which reflect the sunk costs of the existing network.

The forward-looking charges for generators are further divided between local charges, which reflect the bespoke costs of connecting individual assets to the grid, and wider locational charges.

The EU cap does not cover charges “paid by producers for physical assets required for connection to the system or the upgrade of the connection”. Ofgem argued this exemption should include, most if not all, local charges.

SSE disagreed, claiming that the cap had been breached as a result of this interpretation. In March 2016, the company proposed a modification to the Connection and Use of System Code (CUSC) called CMP 261 to address the alleged overpayment. At a meeting in June 2017, the CUSC panel voted in favour of two alternative versions of the modification.

However, Ofgem stuck to its position, rejecting the panel’s recommendations in November. SSE and EDF Energy lodged an appeal against the decision with the Competition and Markets Authority the following month.

Citing independent analysis from an undisclosed source, Intergen has now claimed the ruling, if upheld and applied to future charges, will increase the average annual transmission costs for onshore transmission-connected generation by between £5 and £7/kWh.

The firm says it will also have a knock-on effect on the capacity market, increasing the total annual cost to consumers by at least £250 million, based on a capacity requirement of 50GW.

“The Ofgem rejection of CMP 261 is very disappointing, and badly timed,” said Intergen vice-president Mark Somerset. “Large capital projects rely heavily on policy and regulatory certainty to secure investment.”

He continued: “We estimate this decision could increase the annual cost to the consumer of the capacity market by £250 million to £300 million.

“Moreover, owners of existing and new interconnectors will receive a windfall from higher capacity payments as they are exempt from transmission charges.  Interconnectors continue to benefit unfairly from a highly favourable regulatory regime relative to domestic generation in the UK”.

A spokesman for Ofgem responded: “Network charging arrangements are subject to ongoing and continuous industry code modifications.  In addition, Ofgem has launched a significant code review on residual network charges. Therefore prudent investors understand and expect that network charges are subject to change and will not expect certainty on these arrangements during the life of 15-year capacity market contracts.

“The capacity market will operate most effectively if network charges are cost-reflective and provide appropriate signals to network users – including generators – about where to connect and how to use the networks.”

Intergen operates three gas-fired power stations with a combined generating capacity of nearly 2.5GW at Rocksavage in Cheshire, Spalding in Lincolnshire and Coryton in Essex.

The company won a capacity market contract to build a new 300MW open-cycle gas turbine at the Spalding site in the most recent four-year-ahead (T-4) in December 2016 and also plans to bid two new combined-cycle gas turbine projects at Spalding and Essex into the next T-4 auction in February.

What to read next