Ofgem has confirmed that it will implement steep cuts to small generators’ Triad payments. The regulator suggested its move would save consumers billions in the longer term.
The changes come as part of a larger overhaul of network charging. Ofgem’s review of embedded benefits – the rates of charges and rewards for distribution connected generators – found that one benefit in particular was distorting the market and affecting other policies, chiefly the capacity mechanism.
The so-called demand TNUoS residual (or Triad payment), meant smaller generators could earn £45/kW by exporting at times of system stress. Ofgem said that figure would rise to £70/kW by 2020/21. With that increasing revenue stream ‘banked’, small generators could bid low in the capacity market, undercutting other forms of generation, such as large new thermal gas plant.
Ofgem originally planned to take the Triad payment down to less than £2/kW. The regulator said following consultation with industry, it will take it to between £3/kW and £7/kW over three years from 2018-21.
Cutting the Triad payment will likely increase the outturn of the capacity market. That may lead to some large new gas plants being built, but may also provide a windfall for the UK’s existing fleet of large thermal generators.
Small generators with capacity market contracts secured in 2014 and 2015, before the charging review was announced, and whose revenues will be significantly lower than they anticipated when bidding, will now consider their options.
See Ofgem’s decision letter here.