Britain’s energy regulator Ofgem has voiced concerns that so-called embedded benefits, paid by power suppliers to distribution grid-connected generators, seems to put them at an advantage over larger plants connected to the high-voltage grid. Distributed generators cash in on £45/kW in embedded benefits in addition to selling electricity.
In an open letter, Ofgem particularly addressed small generators connected to the distribution network who get these payments – notably some diesel, gas and combined heat and power plants. Some UK power suppliers have resolved to paying embedded generators in order to avoid high charges from National Grid for balancing the system.
Evaluating the risk of market distortion
“We are particularly concerned about specific payments that these generators receive from suppliers for helping them to reduce the biggest element of the electricity transmission charges they face at peak times,” the regulator stressed, suggesting these embedded benefits would lead to market distortion.
The number of embedded genset, connected to UK distribution network, has risen sharply in recent years. Hence, Ofgem finds that “the level of these payments has increased significantly and is due to rise even further.”
The size of this benefit paid by suppliers to these generators is currently around £45/kW – more than double the clearing price for the 2015 Capacity Market auction. This is forecast to increase in four years to £72/kW.
Amending network charging rules
Eager to ensure a level playing field for all generators, Ofgem now asks industry stakeholder of their view on its concerns over embedded benefits. Launching a consultation process, the regulator committed to factor in responses in its decision process over the UK’s future network charging rules.
Intermittent power sources, notably are “unlikely to be affected by any changes to these payments,” the regulator said. Intermittent generators are usually unable to generate during ‘triad period’, since these fall outside daylight hours – so they do not tend to receive the controversial embedded benefits.
Responding to Ofgem’s open letter, UK Power Reserve CEO Tim Emrich said the regulator does not seem to recognise the value and contribution of embedded generation to the UK’s energy mix. In his view, embedded generation is “a central part of addressing the country’s security of supply and decarbonisation efforts.”
Investment in energy infrastructure, made on the basis that the existing system of embedded charging was deemed ‘fit for purpose’, should receive “appropriate and fair protection from the regulator,” he urged, stressing that UK Power Reserve seeks to continue contribution in Ofgem’s modification working groups throughout the review process.