Ofgem opposes pro-renewables discrimination (CAP148)

Ofgem consultation (55 pages, PDF) on proposals (228 pages, 16M PDF) to amend the Connection and Use of System Code (CUSC) for the transmission networks in Great Britain so that “renewable and low carbon generation” would be allowed to connect before the network investment necessary to accommodate it was complete. One version of the proposal would also have given renewable generation a continuing priority over other network users for the use of congested network resources.

Ofgem proposes to reject all versions of this proposal. Its main reason is that the carbon benefits of the proposal for earlier connections, whether valued at the Government's shadow price of carbon or at the EU ETS market price, would be lower than the additional costs of allowing new connections to operate without the necessary network reinforcement (these are the costs to National Grid, and eventually to consumers, of compensating both renewable generation and other network users for network congestion affecting their businesses).

An alternative ground for rejection is sketched but not fully developed in the document. Ofgem highlights the discrimination against non-low-carbon generation that the proposals entail, and suggests that it might be disproportionate to the carbon-saving objective because of

5.5 ... the possibility of better ways that may be capable of achieving the same aim of providing faster access to renewable generation yet would not discriminate unduly between classes of generator or incur the substantial cost increases that ultimately customers will be expected to pay.

The possibility in question is claimed to arise from Ofgem's transmission access review work (61 pages, PDF).

Responses by Thursday 28 August 2008.

Comment: Ofgem correctly treats the additional subsidies that additional/earlier renewable generation will receive through the renewables obligation as something to be netted off the shadow value of carbon abatement and the fuel cost savings in non-renewable plants (the latter is analysed as a wholesale electricity price effect). Its finding that the net costs are not justified by the carbon emission reduction might therefore be thought to reflect its finding (see e.g. this September 2007 paper) that the renewables obligation is an unduly costly way of subsidising carbon abatement. But examination of table 3 (after paragraph 3.46) shows that this is not the case: in Ofgem's analysis, the costs would still outweigh the benefits in all scenarios even if all renewables obligation payments were cut by a factor of 20. Franck

For further information or advice please contact Franck Latrémolière.

Filed under Electricity, Impact assessment, State aid.

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