A proposal from Ofgem to slash subsidies to small-scale power generators including anaerobic digestion (AD) and landfill gas has been criticised by the Environmental Services Association (ESA), which says operators could be driven out of business.
Under the current arrangements, generators of less than 100MW are paid £45/kW by suppliers for their contribution to the electricity network at peak times, known as embedded benefits.
Ofgem says £350m is transferred on to consumers each year and estimates this could reach £650m by 2020.
Consulting the industry on the change until 10 April, Ofgem says it intends to cut the support by 95% to £2/kW, saying: “The current level of payments is distorting the wholesale and capacity markets. If action is not taken now, this distortion will only escalate.”
The cut is expected to save the equivalent of £20 per household per year by 2034.
ESA executive director Jacob Hayler said the move threatened resource efficiency ambitions by raising costs of waste management for local authorities and disincentivising the use of waste as a fuel.
“Network charging is highly complex and we are concerned that Ofgem is rushing through changes that will have unintended consequences. Energy generated from waste is a reliable source of low-carbon baseload electricity which contributes to the UK’s security of supply whilst keeping costs down for consumers.
“Ofgem appears to be ignoring this and will inadvertently force smaller more sustainable generators out of the market.
“Rather than targeting embedded benefits in isolation, Ofgem should undertake a holistic review of network charging to avoid wider distortions.”
The Anaerobic Digestion & Bioresources Association (ADBA) said the change would have a disproportionate effect on sub-5MW generators, many of which are anaerobic digesters.
Chief executive Charlotte Morton said: “Ofgem’s proposal is likely to lead to more big, dirty power coming online, which makes a mockery of the Government’s commitment to UK carbon budgets and climate change goals.
“ADBA will be submitting evidence to the consultation to this effect and working hard with Ofgem to encourage it to think again. Renewables are critical to the success of the UK economy, and we should be supporting them rather than undermining them.”