Ofgem urged to review entire regime of network charging

Ofgem needs to carry out a “comprehensive” review of network charging “involving all stakeholders”, the head of the Energy Intensive Users Group has argued.

With transmission costs set to increase and questions remaining over who will pay what, “there’s a problem brewing” that will have to be fixed by the regulator.

Speaking at an event in London, the Energy Intensive Users Group (EIUG) director Jeremy Nicholson suggested there was an “element of freeloading going on” in relation to distributed generators which are able to take advantage of so-called ‘embedded benefits’.

“This may range from small solar installations through to larger industrial [combined heat and power], all of which is undoubtedly low-carbon and contributing to security of energy supplies but also benefitting from the network connections,” he said. “The way we’ve been charging for that in the past may not reflect the economic value of having that as embedded generators.”

Nicholson said it was a “very complex” issue and there would “winners and losers” from any changes: “Ofgem should be looking at this in a comprehensive way involving all stakeholders, and not just relying spontaneous code modifications every now and then from self-interested parties, which is what’s been happening to date.”

“It will take years to change this by the way, and change shouldn’t be rushed, but I think we can all see there’s a problem brewing here”, he added.

‘Embedded benefits’ refer to the financial advantages experienced by small-scale distribution-connected generators, for example, an exemption from Transmission Network Use of Service charges. They also include the ‘triad avoidance payments’ which they can earn by helping local energy consumers to reduce their TNUoS charges and then splitting the savings.  

Ofgem has been conducting a review of embedded benefits since the beginning of the year after the extra revenues they provided were widely blamed for having helped a large number of small-scale diesel generators to win contracts in the first two capacity market auctions.