Ofgem has announced that it will be requiring industry to develop changes to the current transmission charging approach. The energy watchdog has warned that it needs to implement a new transmission charging structure to better reflect the “costs placed on the system by all forms of generation, particularly renewable generators, which operate intermittently.”
Transmission charges are paid by generators and suppliers to allow them use of the national grid. Currently, the charges work under the Investment Cost Related Pricing (ICRP) methodology which charges generators more the further they are located from demand. Generators pay charges to distribute power across the network while suppliers pay charges to take power from the network and transport it to their customers.
The aim of the new proposals is to ensure that the UK has arrangements in place to accommodate the move to a low carbon energy sector whilst continuing to provide “safe, secure, high quality network services at value for money to existing and future consumers.”
At the moment, transmission costs account for four percent of a household power bill. However, the cost of updating the energy infrastructure to facilitate low-carbon energy solutions is expected to be footed by consumers. The energy watchdog has maintained that the cost to consumers of the potential changes to transmission prices was a key consideration in its review.
Ofgem is now requiring industry to further develop an improved from of ICRP, stating: “This decision will not result in any changes to transmission charges at this stage but will start an industry led process to further develop an improved form of ICRP through the CUSC process.” Ofgem expects any proposal to ensure that any changes to transmission costs would have a minimal impact on consumer bills.
Ofgem’s detailed conclusions and proposals on the electricity transmission charging arrangements can be viewed here.