ADBA: Reduction in embedded generator payments ‘misguided’

ADBA has today called on Ofgem to reconsider its retroactive decision to reduce embedded generator payments, saying that AD can already deliver exactly what Ofgem and the Government are trying to achieve by reducing the payments.

Embedded generators (power plants connected to lower-voltage distribution networks) with less than 100 MW capacity can receive specific payments from suppliers to help them reduce their charges to use the transmission network. AD operators receive embedded benefit as an important part of their income stream and AD plants offer flexibility, delivering baseload power that is always ready to supply and able to dispatch electricity to meet periods of high demand.

AD operators will lose thousands of pounds in revenue each year as a result of Ofgem’s decision, making them less able to generate power when needed to reduce reliance on the transmission network. Instead of supporting the green AD industry to deliver electricity at peak demand, the Government is paying polluting diesel generators to provide power through the Capacity Market (CM) auction.

In its submission to Ofgem’s consultation on the changes, ADBA challenged the decision to reduce payments, claiming that the evidence put forward by Ofgem suggesting that embedded generation distorts dispatch, wholesale prices, and the CM, or that it translates into increased costs for the consumer, was not sufficiently strong. Ofgem has nonetheless decided to implement the changes to payments in a three-year phased plan, starting on 1st April 2018.

ADBA Chief Executive Charlotte Morton said:

This is a misguided decision and yet another example of the multiple benefits that AD offers in producing home-grown, dispatchable, renewable energy being ignored.

 

It is right that Ofgem are looking at these issues and attempting to keep energy bills as low as possible, but any review of charging should be holistic and should be conducted as part of a Significant Code Review, as Ofgem has proposed in its Targeted Charging Review.

 

It is deeply ironic that AD can deliver exactly what Ofgem and the Government are trying to achieve – reducing energy bills and meeting the UK’s climate change targets – while polluting diesel generators are being given the kiss of life through CM auctions.

 

Alongside delays to vital legislation on the Renewable Heat Incentive and a lack of separate food waste collections in England, this is another unnecessary setback for an industry that can deliver so much. We urge the Government to wake up to the benefits of AD in reducing emissions, extracting value from waste, and improving food and energy security in the UK.

ADBA is recommending further analysis of the potential disparities between generators in and out of the CM. AD generation has to date been excluded from the CM as it receives financial support through government financial incentives for renewables. ADBA therefore believes that AD operators should be ringfenced from changes to embedded benefit charging in so far as this is due to CM distortions.

For further information contact ADBA's Policy Manager Thom Koller on 020 3176 0592 or at thom.koller@adbioresources.org.