– Fairer charges for variable, low carbon generators

– Ofgem’s proposals will avoid significant bill impact for consumers

Ofgem is today asking for industry views on proposals to change the formula to set transmission charges for power generators using the high voltage grid. Overall transmission charges make up four per cent of an average household power bill.

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Given the large amount of new low carbon generation that needs to connect to the electricity networks, Ofgem has been reviewing whether the current formula for setting these charges remains fair.

Ofgem’s preferred option would retain location-based charging where generators pay more to transmit power the further they are sited from areas of high electricity demand. However, improvements would be made to the formula to take account of the type of generator and how often they are using the network to transmit power. This is because the amount of power produced by some generators, mainly wind farms, is variable.

Hannah Nixon Senior Partner for Transmission, said: “The current formula was designed for a different era when Britain’s power all came from conventional sources like coal and gas. The mix of generators producing power is changing rapidly. More renewable and low carbon generators are connecting to the grid. So the charging formula needs to be updated to reflect the new realities of the generation mix. Renewable generators with a variable output are not using the networks continually. The formula needs to reflect this to ensure their charges are fairer.”

The effects of Ofgem’s proposals would impact on conventional generators, but they would be more pronounced for wind farms and other variable generators. Charges for Scottish generators would fall with wind farms in Northern Scotland seeing reductions of up to 60 per cent in the amounts paid for using the wider high voltage network.* Payments made to generators in the south of England would also fall and some generators that currently receive payments from National Grid, would begin to face charges.

Ofgem is consulting on ruling out using a ‘postage stamp’, or ‘socialised’, formula where all generators pay the same charge regardless of where they are located. This is because it would result in around £7 billion of increased costs being borne by consumers without providing tangible additional benefits. Ofgem’s proposal ensures that the cost of transmission is kept low for customers as the effect on bills is minimal.

Ofgem now wants to hear industry views on its proposals before making a final decision next April. Following that, National Grid would table proposals to change the industry rules, meaning the new regime could be in place in 2013.