Ofgem has published extra data and modelling that helped inform its ‘minded to’ position on cutting Triad payments to small generators by around 95%. Stakeholders had urged it to publish the data on which it is making its assumptions, said the regulator.
Ofgem has also extended the consultation response deadline from 10 April to 19 April, recognising the importance of the issue.
The modelling, by Frontier Economics and Lane Clark and Peacock, created four scenarios that vary the level of benefit received by smaller embedded generators from the demand TNUoS residual (Triad payment).
These ranged from essentially leaving things as they are (letting the Triad payment rise to £72/kW); capping it at today’s level (£45/kW) from 2019; setting it at £20/kW plus RPI from 2019, to reflect value of embedded generation avoiding need for extra grid supply point (GSP) and future transmission network investment; or setting it at £1.62/kW, which is estimated to be equal to the value of avoided DSP investment.
Ofgem has opted for the latter scenario, which the consultants suggest would push up prices in the Capacity Market to potentially a £30-£40kW range, roughly that required to bring large new build gas power stations (CCGTs) into play. Under that scenario, Frontier/LCP say wholesale power power market prices would be lower, due to more the efficiency of new CCGTs, while carbon emissions would fall as new, more efficient plant pushed existing CCGTs out of merit reducing their load factors.
The consultants said under the £1.62/kW scenario, system benefits would be £2.1 billion by 2034, and that total savings in consumer costs to 2034 would be is £7.4 billion. They said ‘grandfathering’, that is keeping the status quo for those that have already invested in embedded generation, would not reduce the system benefits, but would reduce consumer benefits, as would a three year phasing-in period of the cuts.
The consultants pointed out that any long-term forecasts are subject to significant uncertainty and that actual market outcomes may differ materially from the forecasts presented.
See the modelling here.