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‘Ruthless’ embedded benefits cuts endangering decentralised generators, industry warns

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The renewables and decentralised energy generation industries have slammed Ofgem’s decision to cut embedded benefits, warning that it risks damaging next-generation power flexibility.

Yesterday Ofgem confirmed in a letter that it had decided to enforce a ‘minded to’ decision it publicised earlier this year to cut embedded benefits payments by as much as 95%. As a result, generators qualifying for the payments will receive between £3 and £7/kW, down from as much as £45/kW. 

The proposals have long been in the planning after Ofgem was tasked by the government to conduct a much broader review of electricity system charges. 

What are embedded benefits?

Embedded benefits are awarded to smaller-scale, embedded generation during peak times because they circumvent the national transmission network, and as such do not transmit electricity over the national grid. They have proven contentious as owners of such generators are regarded by some to benefit from being connected to the national grid when they need to draw from it, but do not pay their fair share of its upkeep. Cuts to embedded benefits are part of wider government-enacted reforms to network charges designed to protect consumers.

The letter confirms that it will direct that Workgroup Alternative CUSC Modification 4 (WACM 4) should be made, concluding that this decision would “best facilitates [sic] the CUSC objectives and is consistent with the Authority’s statutory duties”.

Under WACM 4 TNUoS demand residual payments will be withdrawn and a new payment introduced over the course of a three-year phased implementation programme starting 1 April 2018.

These cuts, the regulator said, had been reached due to that being the estimated cost required to invest in generating capacity at supply points between high and lower voltage distribution networks.

However the renewables and decentralised generation lobbies have responded furiously.

Nina Skorupska CBE, chief executive at the Renewable Energy Association, said the “ruthless” cuts endangered the deployment of future generation and energy storage plants.

“Additionally, several gigawatts of already installed renewable generation capacity will be negatively impacted. This comes on top of 18 months of damaging and sudden policy changes to the sector which are not only hammering the financial viability of new low-carbon projects, but now the viability of existing ones now too.

“This decision flies in the face of where the market is headed. Other nations are actively supporting the deployment of embedded renewable generation and further decentralisation. They see this as leading to a grid that is cheaper, cleaner, and will strengthen jobs and consumers,” she said.

Tim Rotheray, director at the Association for Decentralised Energy, 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. 

"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.”

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