Review of impact assessment raises concern over charging reforms

Ofgem’s planned reform of parts of the charging regime for electricity providers risks undermining renewable energy investments and raising the cost of operating the system, according to a review of the measure’s impact assessment.

Consultant Oxera reviewed the impact assessments for two parts of Ofgem’s Targeted Charging Review – the prospective Transmission Generation Residual (TGR) and Balancing Services Use of System (BSUoS) reform.

Among its concerns:

  • The impact assessment uses a lower cost of carbon for TGR and BSUoS reform than it does elsewhere. Using a consistent cost of carbon means the system cost savings from the reform are lower (falling from £113 million to £14 million in the baseline scenario).
  • The results are very sensitive to input parameters. System costs would be increased further if assumptions on emission intensities, gas prices and other parameters are taken at the upper end of the projections used.
  • The assumption that the deployment of renewables will not be affected by the change because embedded generation is not affected and Contract for Difference support will cover any cost increases for larger plant. In fact, Oxera says, uncertainty over the charging reform could make renewables projects less investible in the short term.

Oxera argues that it would be prudent to delay decisions on reforming these charges until the impact of these issues and of other charging proposals have been “fully taken into account and assessed together”.

Oxera carried out the review on behalf of renewable generation companies Innogy, Scottish Power, RES and Vattenfall.

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