The Environmental Services Association (ESA) today (3 March) has raised concerns over proposals to reduce embedded benefits to small decentralised generators by 95%.
Ofgem has announced its intention to cut the payments from £45/kW to £2/kW, which it says will hit small-scale renewables, including waste-fuelled electricity generated by energy from waste, anaerobic digestion and landfill gas.
Ofgem is consulting on a proposal to lower the payments that some embedded generators receive for producing electricity at peak times. It says this should reduce costs for consumers and prevent “market distortion”.
ESA’s executive director, Jacob Hayler – “These cuts will not only cause serious damage to the UK’s transition to low-carbon energy sources, but will threaten our resource efficiency ambitions by raising costs of waste management for local authorities and disincentivising resource efficient use of waste as a fuel.”
Embedded generators are plant connected to the lower voltage distribution networks. Smaller embedded generators (with less than 100 MW capacity) can receive specific payments from suppliers for helping them to reduce the biggest element of the electricity transmission charges they face at peak times.
These payments are in addition to the price these generators get for selling their electricity, Ofgem says.
“Our view is that the current level of payments is distorting the wholesale and capacity markets,” it says. “If action isn’t taken now, this distortion will only escalate.”
Ofgem proposes to accept an industry proposal to reduce the payments from the current level of around £45/kW to around £2/kW with the reforms to be phased in over three years from 2018 to 2020.
In an impact assessment, it says that the proposals could potentially save consumers up to £7 billion by 2034 (around £20 per household per year).
ESA’s executive director, Jacob Hayler, commented on the announcement, saying: “These cuts will not only cause serious damage to the UK’s transition to low-carbon energy sources, but will threaten our resource efficiency ambitions by raising costs of waste management for local authorities and disincentivising resource efficient use of waste as a fuel.
“Network charging is highly complex and we are concerned that Ofgem is rushing through changes that will have unintended consequences. Energy generated from waste is a reliable source of low-carbon baseload electricity which contributes to the UK’s security of supply whilst keeping costs down for consumers. Ofgem appears to be ignoring this and will inadvertently force smaller more sustainable generators out of the market.
“Rather than targeting embedded benefits in isolation, Ofgem should undertake a holistic review of network charging to avoid wider distortions.”