Smart Grid Consultancy director, Gary Swandells, believes heated debate around proposed cuts to Triad payments is fuelling fear and misunderstanding of the nature of the changes. He points out that Triad avoidance will likely become even more valuable, and only those generators that receive a disproportionate benefit by exporting power in those periods will be affected.
There has been a great deal of discussion and in some cases quite heated views expressed since Ofgem published a less than snappily titled document ‘Minded to decision and draft Impact Assessment of industry’s proposals (CMP264 and CMP265) to change electricity transmission charging arrangements for Embedded Generators’ on the 1st March. The views expressed by people across the industry have ranged from concern through to outrage and unfortunately this has been coupled with a great deal of misunderstanding around what the scope and impact of the change proposals will be.
Firstly, the document is a consultation on the change proposal and hasn’t yet been confirmed although on this point at least, it is highly likely that it will go ahead. The regulator’s proposal relates to the charging methodology that is used to fund the costs associated with the high voltage transmission network, which is commonly known as Triad although its real name is actually TNUoS (Transmission Network Use of System) charge.
The mechanics of the methodology are somewhat convoluted, but simplistically, there is a substantial premium levied on energy consumers during three half hourly periods over the winter, when peak demands occur. This disproportionate charge is then applied on a pro-rata basis so that in theory the costs are applied fairly to those who contributed to the peaks. This can amount to as much as £50,000+ per MW based on geographic location, compared with the value of the electricity itself which more likely to be in the range of £90 – 150 per MWh.
Triad charges can be avoided by consumers if they are able to predict high demand periods in advance and either shift load to another time or use an alternative supply such as embedded generation. Many large consumers like hospitals, water authorities or energy intensive industries already do this albeit with the help of their supplier or demand response aggregator to predict when peaks are likely. This amounts to several hundred megawatts of energy that is shifted away from the peaks, and have assisted with keeping the lights on over recent years as the operating margins have tightened significantly. This however is an indirect consequence and not the purpose of TNUoS.
For generators who are connected to the distribution networks this has been a very attractive opportunity as they have been afforded this same disproportionality in terms on their income, if they were exporting power during the three triad periods. The report presents a case and evidence demonstrating that up to £350m per year to these generators by consumers. Furthermore this figure could reach £650m/year by 2021.
It is also claimed that payments to these generators creates a distorting effect on other markets such as the capacity market, wholesale and ancillary services markets, by disproportionately incentivising such generators. In summary, Ofgem now proposes that payments will be gradually reduced by a third each year over a three-year period, starting in April 2018. The full embedded benefits consultation is available by following this link and closes on the 18th April.
Unfortunately in all the discussion and debate that this has triggered, it would appear that many people have misunderstood the nature of the changes and are worried about the increased costs to the hospitals, etc.
The proposed changes shouldn’t affect them unless they were also receiving income from exported energy. The charging methodology remains and therefore their ability to avoid them still holds the same potential. In fact the forecasts for TNUoS suggest that the costs associated with the transmission system will continue to increase with predictions of over £70 per kW by 2020/21 being suggested.