Ofgem is consulting on a proposal to lower the payments that some embedded generators receive for producing electricity at peak times. This should reduce costs for consumers and prevent market distortion.
Embedded generators are plant connected to the lower voltage distribution networks. Smaller embedded generators (with less than 100 MW capacity) can receive specific payments from suppliers for helping them to reduce the biggest element of the electricity transmission charges they face at peak times. These payments are in addition to the price these generators get for selling their electricity. Our view is that the current level of payments is distorting the wholesale and capacity markets. If action isn’t taken now, this distortion will only escalate.
Ofgem proposes to accept an industry proposal to reduce the payments from the current level of around £45/kW to around £2/kW* with the reforms to be phased in over three years from 2018 to 2020. We are consulting on this proposal and are seeking further views and evidence before reaching a final decision in May. We believe the proposed reforms would not have a material impact on security of supply.
In our impact assessment published today on the reforms, we say that the proposals could potentially save consumers up to £7 billion by 2034 (around £20 per household per year). This is because consumers are funding these payments as part of the network charges they pay on bills. Reducing the payments should also make the energy system more efficient overall.
Ofgem is the independent energy regulator for Great Britain. Its priority is to make a positive difference for consumers by promoting competition in the energy markets and regulating networks.
For facts, figures and information about Ofgem’s work, see Energy facts and figures or visit the Ofgem Data Portal.
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For further information, contact:
Chris Lock: 0207 901 7225
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