Proposals to reform benefits and charging regimes for small-scale power generation in the UK could incentivise the building of more large gas-fired power plants
UK regulator Ofgem is considering reforms to the various embedded benefit schemes, which help support small-scale generation connected to local low-voltage distribution grids rather than the national high voltage transmission grid.
This includes the costs levied by grids to connect plants to the network, which are much lower for embedded generation, and schemes such as Triad, which incentivises large users to either reduce demand on the high-voltage grid or to use embedded generation during times of high system demand.
Ofgem wants to ensure that investment in large-scale projects is more attractive. But this could raise costs for some large industrial users by up to £4mn/yr, participants said.
There are just two new large-scale gas-fired plants that have been awarded capacity market contracts. But as most of the UK's ageing nuclear and coal fleet is expected to close over the coming decade, Ofgem is concerned over future security of supply as the capacity market has failed to incentivise as many new large-scale plants as expected. And fresh doubts over the Hinkley Point C nuclear project have worsened the outlook for new large-scale plants.
Embedded generators have been blamed for lowering the capacity market clearing price to a level that large-scale plants are unable to compete at, aided by financial support from embedded benefits, with Triad identified as the key policy. But flexible embedded generation complements intermittent renewables in a more cost-effective way for the consumer, the chief executive of distributed network utility UK Power Reserve, Tim Emrich, said.
"The world is changing and we are going to see more distributed generation, but we need some of the big kit to ensure security of supply. It is all about striking the right balance," trade association Energy UK's director of generation, Barbara Vest, said.
Small-scale embedded generators have concerns over the implications of "hastily" adjusting the revenue stream attributed to Triad charges. Tackling Triad in isolation, as Ofgem has proposed to do by the spring of next year, could result in unforeseen issues and may yet fail to provide a robust and long-term structure appropriate for the changing needs of the UK power generation sector, the generators said. Ofgem and the UK government frequently implement policies specifically intended to encourage investment decisions towards certain technologies depending on the needs of the country — such as low-carbon contracts for difference, the generators said. Ofgem's concerns around "distorting investment decisions" in favour of embedded over large-scale generation assets may be misplaced as the UK's energy system becomes increasingly decentralised and reliant on intermittent renewables, the generators said.
French utility EdF and UK utility ScottishPower have both put forward suggestions for modifications to the system code — to end the payment scheme altogether by April 2020 or exclude all new projects until a permanent solution is decided. But removing Triad could harm UK industrials. "Individual manufacturing sites are likely to see rising costs as a result of Triad reforms. Some sites may see up to £4mn wiped off their bottom line," the Association of Decentralised Energy's head of policy, Jonathan Graham, said.