Ofgem cuts payments for peak energy generators to save GBP370 million
In the UK, electricity goes through three stages in order to get to the end user.
Typically, power is generated at a plant which is connected to the UK transmission network operated by National Grid PLC, which sends high voltage power to smaller distribution networks spread over the country, which then lowers the voltage and delivers the power to the end user in their home or business.
However, embedded generators bypass the National Grid's transmission network and attach their plants directly to the lower voltage distribution networks.
However, Ofgem said the reduction in payments is only to apply to embedded generators that have plants with a capacity below 100 megawatts, as these are the projects that can receive specific payments from suppliers for helping them to reduce their charges to use the transmission network.
These payments are in addition to the price these generators get for selling their electricity.
"The current level of this payment is around GBP47 per kilowatt (double the clearing price for the 2016 capacity market auction). It is forecast to increase over the next four years to GBP70 per kilowatt. Ofgem's view is that the level of the payment is distorting the wholesale and capacity markets and if no action is taken the distortion will increase," said the regulator.
"Ofgem has decided to accept an industry proposal to phase in a reduction in the payment to between GBP3 per kilowatt and GBP7 per kilowatt over three years from 2018 to 2021. Ofgem believes the reforms will make the energy system more efficient overall," Ofgem added.
The regulator claims there are around 30 gigawatts of embedded generation capacity in Britain's electricity distribution networks. ■