Small power plant generators that receive payments to help keep the lights on during peak times could lose a huge chunk of the funding.
Ofgem is proposing to cut those payments that some embedded generators get from the current level of around £45/kW – double the clearing price for the 2016 Capacity Market auction – to around £2/kW.
These embedded generators are plants that are connected to lower voltage distribution networks.
Smaller generators, with less than 100MW of capacity, can receive specific payments from suppliers for helping them reduce electricity transmission charged they face during peak times.
The payments are in addition to the price the generators get for selling their electricity.
Ofgem believes the current level of payments is “distorting” the wholesale and capacity markets and the reduction would mean lower costs for consumers as they are funding the payments as part of the network charges they pay on bills.
It adds the new proposals could save consumers up to £7 billion by 2034, i.e. around £20 per household annually.
Ofgem has launched a consultation and is inviting views on its proposals until 10th April.
A report published last month showed distribution network operators have made more than 3.7GW of capacity available through smarter approaches to connections, which includes flexible connection arrangements.
Ofgem recently also confirmed it would reduce National Grid’s spending allowance by £185 million.