‘Overreaction’ to embedded benefits will harm energy investment

Reforms to embedded benefits to prevent diesel engines from securing capacity market contracts are an “overreaction” which will harm investment in energy, UK Power Reserve has warned.

Changes being considered by Ofgem reflect a “backlash” from big utilities which are “upset that the pot has not been sweetened enough for them”, chief executive Tim Emrich told Utility Week.

“Clearly they’re seeking to make change,” he said. “They think the embedded charging regime… gives an unfair advantage, but the reality is there are unfair advantages all over the map for transmission connected generation.

“What nobody’s really talking about is the fact that the utility generation is upset that distributed generation isn’t paying for their network. I think the worst thing that can be done is an overreaction, which has happened, that then stymies any kind of investment in UK energy.”

UK Power Reserve has prequalified 1.5GW of capacity for the next auction on 6 December, including more than 200MW of battery storage. Emrich fears batteries could be hit by changes to embedded benefits. He said utilities are “naturally worried” about the impact of storage and claimed “the powers that be” are trying to scupper its chances in the capacity market.

Ofgem launched a review looking at the financial advantages enjoyed by small-scale distributed generators in January, after diesel engines won the lion’s share of the contracts for new capacity in the first two auctions.

These so-called embedded benefits include an exemption from the Transmission Network Use of Service (TNUoS) charges levied by National Grid, and triad avoidance payments which they can earn from suppliers for reducing their TNUoS charges.

In open letter in July, Ofgem said it was looking at two possible changes to the Connection and Use of System Code to prevent them from being over-rewarded.

A spokesman for the regulator said triad avoidance payments have “increased significantly” over time and that action is necessary to stop them “distorting the market”.

“A number of proposals have been made by industry parties to address this. We published a letter on embedded benefits in July and have since been listening to views from stakeholders. Our review is independent of government. We will publish an update letter before the capacity market auction in December to provide further clarity on our thinking.”

The Department for Business, Energy and Industrial Strategy (BEIS) has yet to respond to a request for comment.

Cornwall Energy (now Cornwall) warned in October that “rushed changes” to embedded benefits could have “wide-ranging unintended consequences”, reducing security of supply and pushing up costs to consumers.