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Ofgem rejects calls for £120 million consumer funded rebate for suppliers

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Ofgem has thrown out a request by SSE to modify industry rules which would have resulted in generators receive a £120 million rebate funded by consumers.

The company claimed that Transmission Network Use of System (TNUoS) paid by generators in 2015/16 breached the annual average limit set by European Union regulations.

This requires that the average charges for network access “should be kept with a range which helps to ensure that the benefits of harmonisation are realised”. In Great Britain, this is set within the range €0 - €2.5/MWh.

Generators claimed their transmission network charges for 2015/16 exceeded this cap, with SSE submitting ‘CMP 261’ on 8 March 2016, a modification to address this alleged breach by returning £120 million to generators. 

After months of consideration and consultation, Ofgem has rejected the modification on the grounds that most, if not all, so-called local network charges, which mainly relate to transmission links connecting offshore wind farms to the grid, should be excluded from this cap.

As these connections formed the basis of the generators call for a modification, exclusion of them means the cap on generator transmission charges has not been breached.

“We believe this decision to be the better interpretation of the EU regulation consistent with Ofgem’s statutory objectives and duties and in the long-term interests of consumers,” the regulator stated.

The regulator added that a significant proportion of the cost of a rebate would be passed through to consumers through higher retail prices from suppliers. This would likely increase overall costs to consumers, without justification, in the year that the rebate is recovered. Ofgem deemed this would result in consumers likely being significantly worse off in the short-term.

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