Embedded Benefits: Impact Assessment and Decision on industry proposals (CMP264 and CMP265) to change electricity transmission charging arrangements for Embedded Generators

Publication date
22nd June 2017
Information types
Policy areas

Following our March 2017 consultation on industry proposals CMP264 and CMP265 and our consideration of responses, we have decided to direct that  WACM4 be implemented, from 1 April 2018. This document covers our assessment of the impact of those proposals and their 23 alternatives. 

Since last year, we have highlighted concerns about the electricity transmission network charging arrangements for smaller Embedded Generators (EGs), including the exemptions and payments collectively referred to as ‘Embedded Benefits’. We have previously indicated that the ability of a supplier to use sub-100MW (‘smaller’) EG to reduce transmission use of system charges, and for smaller EG to be paid to help others avoid them, is a distortion. We indicated in July and again in December last year that one element – specifically the TNUoS Demand Residual (TDR) – was a significant cause for concern.  Industry raised modifications CMP264 and CMP265 to address these distortions. This impact assessment covers those modification proposals and the 23 Workgroup Alternative CUSC Modification proposals (WACMs) produced during the industry self-governance workgroup process.

We have assessed which of these proposals better, and then ultimately best, facilitates the CUSC objectives and furthers our statutory duties, in line with our duties as independent regulator. We have undertaken both a qualitative and quantitative assessment of the 25 proposals available to us. We considered each proposal against the CUSC objectives and our statutory duties. Our assessment took into account the responses to our July 2016 open letter, views of the CUSC Panel, the consultation responses from the workgroup process,the Final Modification Report and the responses to our minded to decision. Our quantitative assessment takes into consideration the quantitative assessment from modelling and consultancy support that we commissioned for this purpose from Lane Clark and Peacock LLP and Frontier Economics.

Our draft impact assessment and minded to decision found that several proposals better facilitated the CUSC objectives – in particular on competition and cost reflectivity grounds, with WACM4 the option most likely to best facilitate the objectives. This remains our view, and our impact assessment sets out the rationale for our decision and our assessment of the likely impacts. 

Our decision is to direct that WACM4 be implemented. The level of TDR payments to smaller EG should be reduced to the avoided GSP costs, and the changes should be introduced through a three-year phased implementation, beginning on 1 April 2018.

Update 23 October 2017

Ofgem has been served with a claim for judicial review concerning its decision to approve WACM4 of CUSC modifications CMP264 and CMP265.   

The case number is: CO/4397/2017.

National Grid Electricity Transmission plc has been named by the claimants as an interested party to the proceedings.

Ofgem has filed its Acknowledgement of Service and Summary Grounds of Resistance for contesting the claim. 

Any bodies that consider themselves interested parties, should take their own legal advice in relation to this matter.   

Ofgem’s decision to approve WACM4 of CUSC modifications CMP264 and CMP265 stands unless quashed by the court.