Triad avoidance may cease to exist by 2022, according to Gridbeyond chief executive Michael Phelan.
The head of the flexibility provider, formerly known as Endeco, also thinks Capacity Market prices will rise following the failed legal challenge to halt Ofgem’s cuts to embedded benefits.
The High Court ruling means that the main embedded benefit, the TNUoS residual (or Triad payment), will now be cut. The result will be that embedded benefits will fall from £45/kW to around £3/kW over three years to 2020.
The upshot may be higher Capacity Market (CM) prices, because smaller generators, without Triad payments in their pockets, will be less likely to submit low CM bids.
Phelan said such “artificially low bid prices … fabricated a capacity market that is not indicative of the actual commercial value of capacity”. With Ofgem’s cuts now legally cleared, “a substantial proportion of volume in future Capacity Market auctions may not be able to bid in the low prices seen in previous auctions”, he added.
As such, the firm expects to “see a gradual increase in the clearing price of the Capacity Market in the coming years”.
Triad end game
Triad avoidance, where businesses reduce the power they draw from the transmission system over winter in order to avoid the three highest peaks, on which their transmission charges are retrospectively based, also looks likely to be scrapped in the mid-term, at least in its current form.
Ofgem is reviewing network charges more broadly, with wide ranging changes likely to come out of its Targeted Charging Review and related work.
While industry has voiced concern around impacts of change, and complained of a lack of visibility, Phelan believes demand-side response (DSR) providers are set to gain from the review.
“Ofgem is yet to set out which of the transmission system charging choices is its preferred option, but it is highly likely that Triad charging will not persist in its current form past 2022. A consultation is expected this summer, with a final decision on the future of behind-the-meter actions at some point in Q4 2019,” said Phelan.
“The result of any changes will make DSR participation more attractive for industrial and commercial electricity consumers, not less as many may believe. Since it is possible that avoiding Triad charges may become more difficult, large energy users will be further incentivised to explore the wider benefits of using the flexibility within their energy demand to take advantage of other opportunities in the balancing services or wholesale markets.”