Ofgem has decided to reduce a specific payment that some small electricity generators receive to help keep the lights on at peak times.
Called embedded generators, they are power plants with less than 100MW of capacity and are connected to the lower voltage distribution networks.
They can receive specific payments from suppliers for helping them reduce their charges to use the transmission networks. The payments are in addition to the price these generators get for selling their electricity.
There is around 30GW of embedded generation capacity on Britain’s electricity distribution networks.
Embedded generators currently receive £47/kW – double the clearing price for the 2016 Capacity Market auction – and is forecast to increase over the next four years to £70/kW.
This payment cost customers around £370 million last year.
Ofgem believes the level of payment is distorting the wholesale and capacity markets and if no action is taken, the distortion will increase.
It will now be reduced to between £3/kW and £7/kW over three years from 2018 to 2021.
Chief Executive Dermot Nolan said: “We are concerned that the current level of the payment is distorting the market and is set to increase further. Our role is to protect customers and make sure costs are kept as low as possible. That is why we are taking action by reducing this payment.”
The Association for Decentralised Energy (ADE) belives the decision today “does not address the heart of the issue, which is Ofgem’s approval for the rapid rise in the cost of the transmission network from £943 million in 2007 to £3.7 billion in 2021”.
Director Tim Rotheray added: “We are disappointed that the much larger national benefits that small generators deliver by reducing use of transmission networks remain unexamined, and Ofgem’s new review must investigate how lowering use of the transmission network can save consumers money over the long term.”