Network charging changes pose ‘substantial’ risk to smart energy

Changes to networking charging arrangements being considered by Ofgem pose a “substantial” risk to the government’s smart energy ambitions.

The Association of Decentralised Energy (ADE) warned the regulator should “err on the side of caution” as it decides on reforms to so-called embedded benefits experienced by distribution-connected generators or face “unintended damage across the economy”.

ADE director Tim Rotheray said: “The full range of harm to the government’s strategic ambitions, from manufacturing energy costs to new battery storage investments, is substantial.”

Rotheray’s comments came after Ofgem revealed it will make a decision in the first half of next year on one of two proposed changes to the financial upsides that come with being connected to a distribution network – known as embedded benefits.

The reforms are specifically targeted at the triad avoidance payments which embedded generators can receive by helping suppliers to reduce their transmission charges. Ofgem says the payments are resulting in market distortions, particularly in the capacity market, which has seen large numbers of embedded diesel generators win contracts in the first two auction rounds.

Rotheray said the ADE is “disappointed” with Ofgem’s decision to stick to this time scale and proposed remedies despite feedback from industry that it is not the optimum approach. He warned that the plan is “rushed” and too heavily focussed on the recommendations of large generation companies.

“Until Ofgem has had the opportunity to undertake a more rigorous, holistic review, which the current process has not allowed, it needs to ensure it protects consumers, security of supply, and investor confidence by taking a cautious approach, including the grandfathering of existing sites,” said Rotheray.

ADE is not alone in expressing doubt about Ofgem’s approach to reforming embedded benefits. UK Power Reserve chief executive Tim Emrich also told Utility Week last month that he thought Ofgem’s actions pandered to a “backlash” from big utilities which are “upset that the pot has not been sweetened enough for them”.

UK Power Reserve has secured numerous contracts for distribution-connected gas engines in the capacity market and the company is concerned that “Ofgem have not ruled out retrospective policy changes which will impact very negatively on our committed investment programme.”

A spokesman for Ofgem said: “The benefit that smaller embedded generators get for producing electricity at times of highest demand has increased significantly. We remain concerned that this distortion may be having an impact on the capacity and wholesale markets, driving up costs to consumers in the long run. It is important that we have a level playing field between different types of generation.”