Ofgem has confirmed that it faces a legal challenge to its decision to cut payments to smaller power generators that export during peak demand periods.
The challenge was predicted ahead of the regulator’s final decision on cutting Triad payments as part of its review of embedded benefits.
The main element, the TNUoS residual (or Triad payment), is set to be cut from £45/kW to between £3-7/kW over three years from April 2018, which Ofgem says could potentially save consumers up to £7bn by 2034.
Ofgem says such high payments for exporting during Triad periods on the network are distorting the market, potentially loading costs onto other consumers. Those costs are predicted to rise to £70/kW, costing consumers some £650m a year by 2021.
But firms that bid for capacity market contracts in 2014 and 2015, before changes to Triad payments were mooted, are dismayed at the decision. They bid prices into those auctions based on the Triad payment remaining in place and now stand to lose a significant chunk of revenue. They wanted Ofgem to ‘grandfather’ those payments, but the regulator decided against that approach.
UK Power Reserve chief executive Tim Emrich told The Energyst in June that he was “100% certain” Ofgem faced a judicial review over embedded benefits cuts.
He suggested its “rushed” analysis behind the decision could be picked apart, particularly around the cost of grandfathering the rate of Triad benefit for embedded generators with 2014 and 2015 capacity market contracts.
Ofgem has now confirmed that challenge, although the parties making the claim are not yet known.
‘Ofgem has been served with a claim for judicial review concerning its decision to approve WACM4 of CUSC modifications CMP264 and CMP265.
This decision stands unless quashed by the court.
We are defending the claim. National Grid Electricity Transmission plc has been named by the claimants as an interested party to the proceedings.’
Industry title Utility Week cites Peak Gen Top Co as one of eight firms making the claim.
Peak Gen, lead by Mark Draper, formerly CEO of Ocean Power Technologies and one-time head of generation at Powergen, won 124MW of capacity market contracts in the December 2014 auction.
While broadly viewed by industry as a measure designed to curb diesel generation, other forms of generation, including renewables, will be hit by Triad export payment cuts.
Welsh Water told The Energyst that its “massive” investment in hydro, now standing at almost 16MW, had been “heavily” undermined by the decision.