Ofgem, the U.K.’s energy regulator, has confirmed today that the level of subsidy paid to small-scale providers of backup power to the national grid will be slashed from £45/kW, to between £3/kW and £7/kW.
This move follows mounting pressure on Ofgem to lower consumers’ energy bills, with the regulator saying that by reducing this subsidy, the average household could cut its electricity bill by £20 per year.
However, clean energy advocates have criticized the decision, stressing that the cuts are another damaging blow to the development of next-generation flexibility and energy storage technologies.
There is also concern that Ofgem has caved into pressure from a number of large-scale power developers and utilities, despite most of these firms recently announcing hikes in their own energy prices.
It is estimated that this small-scale payment – which was eligible to any provider with less than 100 MW of power capacity fed into the grid (meaning most distributed solar generators qualified for the support) – cost customers some £370 million in 2016.
The monies would be paid by Ofgem during times of peak demand when the National Grid would have to rely on the extra backup power supplied by small-scale power generators. As the solar and energy storage markets have grown over the past few years, so too has the number of these “embedded generators”. But more generators means more potential payments per kWh – something that Ofgem felt it necessary to keep a lid on.
“Our view is that the level of the payment is distorting the wholesale and capacity markets, and if no action is taken the distortion will increase,” said an Ofgem spokesperson.
However, the chief executive of the Renewable Energy Association Nina Skorupska called the cuts “ruthless” and “damaging”.
“Several GW of already-installed renewable generation capacity will be negatively impacted,” Skorupska said. “This comes on top of 18 months of damaging and sudden policy changes to the sector that are not only hammering the financial viability of new low-carbon projects, but now the viability of existing ones too.
“This move will clearly benefit larger, incumbent companies compared to the innovative renewable energy players that have burst on to the market in the past decade.”
Skorupska added that Ofgem’s decision flies in the face of where the market is headed, and not only undermines the deployment of decentralization but potentially threatens job growth and further strengthening of the grid.