Renew On Line (UK) 31

Extracts from the May-June 2001 edition of Renew
These extracts only represent about 25% of it

Wake up call on

Embedded Generation

The Embedded Generation Working Group, which was set up by Government to look at ways to improve access to regional electricity distribution networks for smaller generators, has produced an interim report which points to major problems with the existing arrangements for allowing small local generation projects to feed power to the grid. This is particularly important for renewable energy. Embedded generators are those connected to the distribution networks of public electricity suppliers (such as London Electricity or Northern Electric) rather than directly to the National Grid. Most CHP and renewable generating stations are ‘embedded’.

Based on extensive consultation within the industry, the report notes that embedded generators are charged for the full local grid reinforcement costs which result from their connection and that these connection charges represent a financial barrier to new plants. Worse still, these charges only fall on the first generator to seek to join the network. ‘If a major reinforcement is triggered, there is no mechanism for sharing the costs of the reinforcement with subsequent connectees.’

Moreover, there is no incentive for the distribution network operators (DNO’s) to seek to add in other embedded generators- the DNO’s ‘have no further revenue stream from embedded plant because such plant pays no distribution ‘Use of System’ (DUoS) charges’. The report adds that ‘other incentives on DNOs to connect embedded plant are weak’ and notes that ‘lack of published information about the best locations for embedded generation means that potential generators have difficulty in determining charges and the best (or worst) places to connect to the network’.

It concludes that ‘without significant changes to many or all of the above, the development of renewables and CHP plant envisaged in the Government’s environmental targets could be restricted. The full potential for embedded generation will only be realised if incentives for all the key stakeholders are aligned to create the right commercial environment which will enable embedded generation to contribute to a stable and secure network whilst ensuring a diversity of fuel supplies in a more environmentally sustainable manner’.

The report calls on Ofgem to review the structure of regulatory incentives on distribution companies in order to ‘adopt a connection and use of system charging regime which reflects more effectively the level playing field which needs to be established for embedded plant; review and prepare guidance that will allow distribution companies to take fully into account the contribution embedded generation makes to network performance; and put in place better arrangements for distribution companies to provide connection and charging information to developers of embedded generation’. It also calls on the government to set up a group to co-ordinate and take forward the implementation of the present Group’s recommendations for the longer term.

The current group was a little constrained by the fact that its brief did not include the impact of the new electric trading arrangements (NETA) on embedded generators- that was evidently addressed by a separate group within the NETA Programme. Nevertheless, some of the Working Group’s detailed recommendations clearly relate to pricing policy. For example it recommends that ‘Ofgem should review the structure of regulatory incentives on DNOs in the light of the new statutory duty on DNOs to facilitate competition, in particular to assess the effect this new framework will have on all the stakeholders including DNOs, Generators, Customers and Suppliers’.

Reactions

Helen Liddell, then DTI Energy Minister, said she was ‘impressed by the degree of consensus reached given the wide range of interests involved in the Group’ and agreed that it was ‘vital that we help developers and operators of environmentally friendly embedded plants such as CHP and renewables gain fair access to the distribution network at fair prices’. She added "Consumers are increasingly demanding green sourced electricity. At the same time, cost effectiveness of smaller generation plants is improving all the time. Measures to improve electricity production from embedded generators will make a valuable contribution to the Government's target of producing 10 per cent of electricity from renewable sources by 2010".

However, according the Financial Times, the DTI said it was too early to say whether the recommendations would be adopted. The report will now be subject to a period of consultation with the industry.

* The Working Group on Embedded Generation Network Access Issues consisted of representatives of the electricity transmission and distribution industries, embedded generators, consumers, the Energy Saving Trust and an independent member.

Their interim report can be obtained via 0870-1502-500 or from the DTI Web at www.dti.gov.uk/energy/egwg/index.htm