Ofgem’s proposed reforms ‘undermine’ low-carbon power transition, renewables sector warns

The reforms have faced strong opposition from distributed generators and trade bodies

Published on Thursday (21st November) after a two-year review known as the Targeted Charging Review (TCR), Ofgem’s proposal paper confirms plans to reduce the payments made to smaller energy generators with a capacity of 100MW or less.

At present, so-called ‘embedded Benefits’ are paid to larger and smaller energy generators alike, with wind, solar, combined heat and power (CHP) and energy-from-waste (EfW) generation all eligible for payment. The proposals would lessen these payments to most smaller energy generators while also removing the Transmission Generation Residual payment for larger generators.

Ofgem has justified this change by saying that it will reduce both forward-looking charges, which are used to pay for new investments in the power grid and are designed to reflect users’ impact on costs; and residual charges, which are used to cover the remaining costs of the existing network, for millions of domestic and business customers.

But the Renewable Energy Association (REA) has claimed that these savings may not be “enough to compensate for the damage done to the market from the TCR”, due to the fact that “businesses and homes which have taken responsible steps to install low carbon technologies will effectively pay more to use the wires needed to support the system”.

“Although there are a few consolations for larger generators, Ofgem’s announcement undermines the move towards a more flexible power system,” REA chief executive Nina Skorupska said.

“Our proposal from the start was for the TCR to be progressed in combination with another set of proposed changes, called the review of ‘forward-looking charges.’ Tackling and rolling out these two sets of proposals in tandem would have allowed the whole picture of grid charges to be progressed at the same time in a cohesive manner.

“This has not happened, however, and we now face a period of investor uncertainty and a significantly weakened business case for battery storage and the other crucial systems we need to ensure Britain has a modern power grid.”

Skorupska’s comments echo recent REA reports warning that neither the UK Government nor Ofgem are doing enough to support the shift to a flexible energy system at the pace needed for the nation to meet its legally-binding net-zero target.

Other renewable energy leaders to have criticised Ofgem’s TCR findings include consultant and reporter Franck Latrémolière, who called the paper a mix of “bad economics, bad design, bad politics and bad timing”; Good Energy’s regulation and compliance manager Tom Steward; and RenewableUK’s head of policy and regulation Rebecca Williams.

Williams said: “Although we welcome the fact that Ofgem has listened to industry’s calls to modernise the way network charges are redistributed across the grid, we are concerned that today’s announcement risks damaging the UK’s ability to deploy cheap renewables as fast as possible for consumers.

“We need to pull out all the stops to deliver the low carbon transition… Reforming Ofgem so that it takes account of the need to reach net-zero rapidly and cheaply would unlock further investment to build the flexible, smart, clean energy system of the future – vital infrastructure which the UK needs to function in the decades ahead.”

Aurora Energy Research warned in May that TCR changes could set back the progress of renewables, which are often connected at the distribution level, by up to five years.

Ofgem response

Pre-empting these concerns in the foreword to the decision document, Ofgem’s chief executive Dermot Nolan wrote: “More and more businesses and households are generating their own electricity on-site, including from renewables such as solar power.

“However, these consumers still use the grid, for example on dark winter evenings when solar power cannot generate electricity.”

“By taking less electricity from the grid by either generating their own electricity or taking other action, some businesses and households currently avoid paying (some or all of) these charges, despite being able to draw on the networks as and when they need. The cost that they avoid falls on those that are not able to take similar action.”

Sarah George

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