Open letter: Charging arrangements for embedded generation

Correspondence and other

Publication date

Industry sector

  • Supply and Retail Market
  • Distribution Network
  • Transmission Network
  • Generation and Wholesale Market

See below for our open letter on the network charging arrangements for small electricity distribution connected generators (called ‘embedded benefits’). These benefits include both payments that these generators receive and also charges that they avoid paying.

We are particularly concerned about specific payments that these generators receive from suppliers for helping them to reduce the electricity transmission charges they face at peak times (the Transmission Network Use of System demand residual payments). 

The electricity system is changing rapidly and there has been a major increase in generators connecting to the distribution networks over the past couple of years. The level of these payments has increased significantly and is due to rise even further. 

Ofgem thinks that these arrangements may be distorting energy markets and that there should be a level playing field for all generators. This could also impact on the decisions to either build or close large power stations which also play an important role in delivering security of supply.

Ofgem is asking for views on these concerns which will feed into our thinking including on several proposals that have been raised by industry parties to change network charging rules. Ofgem encourages industry stakeholders to respond to the open letter and engage in the consultation process for these rule changes before they come to us for a decision. Ofgem will also consult on some other aspects of embedded benefits and related matters in the autumn.