Ofgem confirmed on 15 June that triad payments for embedded generation customers would reduce from £47/kW to £3-7/kW. The reduction will not be immediate, and will instead be phased from April 2018 to 2021.
Customers connected to the distribution system can gain a range of embedded benefits under the current system. These benefits are paid to the customers because those customers help the distribution network owners avoid transmission network costs. One of these is the triad avoidance payment, paid to embedded generators who dispatch at times of highest demand. However, last year Ofgem became concerned that embedded benefits in general and triads in particular were increasing above the level of the avoided costs, and not only were becoming uneconomic but were giving the wrong market signals and so resulting in network distortions as more and more customers sought to gain income from triad payments.
Ofgem issued an open letter about potential changes to triads in July of last year, and followed that up with a consultation and a 'minded-to' decision in March this year. The announcement of the change shows that the triad will not be reduced as much as originally thought, with the initial consultation suggesting a transition to £2/kW.
Operators of non-intermittent generation (such as CHP plants) will be significantly more affected than operators of intermittent facilities such as wind and solar. However, the prospect of a judicial review of this decision is considerable given the volume of capacity market bids made on the basis of the triad avoidance payment as a key part of the revenue stack.
Further details can be found here.
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The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
