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Ofgem commits to 'embedded benefit' cuts

Ofgem is persevering with plans to cut subsidies to small-scale power generators, including anaerobic digestion and landfill gas, despite industry criticism of the move.

Under the current arrangements for ‘embedded benefits’, generators of less than 100MW are paid £45/kW by suppliers for their contribution to the electricity network at peak times.

But in March, Ofgem consulted on cutting the support to as little as £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.”

Ofgem said the change could save the equivalent of £20 per household per year by 2034.

After a meeting on 15 June, Ofgem said confirm cuts proposed in the consultation would be introduced over a three-year period starting in April 2018. The new level would now be between £3/kw and £7/kW. The reasons for the decision are set out here.

The proposal was criticised during consultation by the Environmental Services Association (ESA), and the executive director, Jacob Hayler has now accused Ofgem of ignoring its concerns about the scale of the proposed cuts to small, decentralised, low-carbon generators.

”Not only does this decision endanger the UK’s renewable energy commitments, it also makes a mockery of our Circular Economy ambitions by disincentivising resource efficient use of waste as a fuel. The removal of these payments will raise costs of waste management for local authorities at a time when services are already under threat.

”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.

”Despite the Government’s pronouncements on the importance of diversifying the energy mix, Ofgem has favoured big fossil fuel power stations over smaller more sustainable generators which could now be forced out of the market. As ESA has said in the past, network charging is highly complex and these changes should not be made in isolation or they risk unintended consequences.”

The Anaerobic Digestion & Bioresources Association said then the change would have a disproportionate effect on sub-5MW generators, many of which are anaerobic digesters.

Responding to the latest announcement, Dr Nina Skorupska, chief executive at the Renewable Energy Association, called the cut “ruthless”.

She said: ”This move will clearly benefit larger, incumbent companies compared with the innovative renewable energy players that have burst on to the market in the past decade.

”This decision flies in the face of where the market is headed. Other nations are actively supporting the deployment of embedded renewable generation and further decentralisation. They see this as leading to a grid that is cheaper, cleaner and one that will strengthen jobs and benefit consumers.”

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