Ofgem’s announcement that it is ‘minded to’ dramatically cut Triad benefits for embedded generation came as no surprise to the industry, but nevertheless caused dismay. Industry comment:
Tim Emrich, chief executive, UK Power Reserve:
“We agree that reform is needed which balances the requirements for security of supply, value to consumers and decarbonisation of power generation. However, the current proposal to reform the long-standing triad system so quickly cuts across the need to maintain investor confidence by not enacting retrospective changes on historic investment decisions. ”
Our analysis demonstrates that changes of this sort, whilst superficially appearing to deliver short term benefits for consumers, will in the long run result in higher costs: further subsidies will be required to keep old and unreliable coal plant open as investment in new, flexible gas plant is deterred. The energy system is already hugely biased towards maintaining the status quo. And the result of these changes will be to sustain legacy coal and gas power stations which are dirty, inflexible and uneconomic. Our journey towards a smarter, cleaner and more affordable energy system is being dealt a big blow today.”
Stefan Leedham, acting head of governance at ElectraLink:
“The energy industry has been grappling with how best to address this issue for a number of years. The plans outlined today will affect a large number of generators. Cutting embedded benefits could impact much needed investment in the sector and more broadly affect the energy market which is already in flux. The level of the proposed changes demonstrates the impact that could occur if these issues are not addressed quickly. The increasing volume of embedded generation has meant that more GSPs have started to export energy as the volume of embedded generation increases. We continue to believe there is value in undertaking a holistic review of the electricity charging regimes covering transmission and distribution to ensure they are set up to accommodate increasing levels of storage and smart grids; and avoid step changes which harm investor confidence.”
James Court, head of policy and external affairs, Renewable Energy Association:
“This decision flies in the face in the face of where the industry is trying to move, making decentralised and renewable technologies more expensive whilst rewarding existing incumbent fossil fuels.
“Grid charging is complex, trying to unpick one area seriously distorts the whole market. We, along with the vast majority of the industry, have been calling for a significant code review to look at the entire area to ensure that charges are fair and appropriate. This highlights the problems of a selected few making decisions on behalf of the whole sector.”
Jacob Hayler, executive director, ESA:
“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.”
Tim Rotheray, director, ADE:
“Ofgem’s proposal will support increased coal generation at the expense of the smarter, more flexible and innovative energy solutions we should be supporting.
“Ofgem has depended on a rushed industry review, led by large coal and gas generation interests, and has not undertaken the kind of robust evidence gathering that we would expect for a decision worth hundreds of millions of pounds. Ofgem’s assumptions for consumer savings are entirely dependent on new large gas power stations being built, an assumption which was not born out by the last Capacity Market auction.
“Ofgem’s approach could just as easily result in higher energy costs for everyday householders, and the consequences for industrial manufacturers, hospitals, and local authorities who generate their own power could be devastating.”