United Kingdom

United Kingdom

Recognising the value of embedded generation

The issue of embedded generation continues to exercise Britain's wind plant operators; savings made by electricity distributors in not having to rent space on transmission lines should be reflected in the price paid for wind. The benefits could be worth some £10,000 a year for each MW of installed capacity, or £0.002/kWh, and would affect a wind project's ability to compete for contracts under the NFFO system of support.

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As the issue of embedded generation -- electricity generated close to where it is consumed -- continues to exercise Britain's wind plant operators, some are lobbying for "triad" benefits to be included in the price paid for wind power output. Triad benefits are savings made by the regional electricity companies (RECs) on National Grid Company (NGC) charges for use of the transmission system, based on their consumption of electricity at times of peak demand. Demand is measured over three peak half-hours -- the triad periods -- between November and February. Any generation embedded in the REC's own distribution system reduces its use of NGC's transmission lines, affording a corresponding reduction in NGC charges in proportion to the wind farm's availability.

Wind energy, which tends to contribute at or near maximum output at peak demand times, offers a clear measurable saving to the local REC. Some renewable generators have successfully negotiated with their local REC to share this saving -- although not all RECs throughout Britain are prepared to follow suit. Owners of most schemes contracted under the Non Fossil Fuel Obligation (NFFO), however, find themselves unable to reap any of the triad benefits whatsoever. Their contracts with the Non-Fossil Purchasing Association (NFPA) -- which buys their output -- stipulate that the local REC is entitled to the entire output from a NFFO scheme.

The benefits could be worth some £10,000 a year for each MW of installed capacity, claims National Wind Power's Peter Musgrove. "That is £0.002 per kWh," he comments. This would affect a wind project's ability to compete for contracts under the NFFO system of support. He points out that under the previous round of the NFFO (NFFO-3) the lowest bids were just over £0.04/kWh. In the forthcoming round they are expected to be even lower. "If bids are between £0.03-£0.04 at the lower end of the range, a saving of £0.002 will be significant."

NFPA maintains there is no room for manoeuvre on the issue. "We are of the view that NFFO contracts do not permit a generator to trade his triad benefits," comments the NFPA's Andrew Wood. He denies the charge that the RECs reap the benefit from NFFO contracts. This is a "pass through" saving that the RECs pass on to their franchise customers, he explains. "The issue is that either the customer gets the benefit or the generator." He also refutes the suggestion that the present system is unfair. "It is fair because these NFFO contracts are already heavily subsidised," he says.

Musgrove argues that if NFFO contracts allowed for the triad savings to be passed on to wind farm operators it would be reflected in more competitive bidding under NFFO and beyond. "After 1998 those who have NFFO-1 and 2 contracts will be able to pick up the benefits. But in the interim I would like to see everyone have these benefits in their NFFO-4 bidding because that would demonstrate faster convergence with the market price. And as we drive the price down I would hope that wind would be rewarded with a larger NFFO tranche."

One ally on the issue is the Office of Electricity Regulation (OFFER), although Karen Marshall from OFFER is quick to point out that the Regulator's powers are limited. "We have tried to help move things along but we can only do it by persuasion," she says. She would like to see a uniform approach to triad savings. "Some generators are getting the benefits, some are not; that is definitely unfair. We would like to see consistency. Our argument is that NFFO generators should be able to trade benefits in the same way as non-NFFO generators." Meanwhile Marshall fears it is getting too late for a solution to be effected in time to help developers with their NFFO-4 bids. "They really need to know now so that they can build triad benefits into their bid price. But we have not entirely given up hope on NFFO-4."

Yet according to Andrew Wood from the NFPA, triad benefits cannot be built into future NFFO bid prices. He points out that generators cannot predict in advance exactly what the benefits will be when preparing their bids.

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