United Kingdom

United Kingdom

Regulating for credit where credit is due

A detailed proposal is being considered in Britain for monetising wind's "embedded" value in supply systems as a technology which earns credit for being close to the point of demand. The expected consequence would be fewer losses and less pollution.

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A regulatory mechanism for boosting the competitiveness of renewable energy projects on the open market is being studied by Britain's electricity regulator as well as by government ministers and their officials. The blueprint for a fairer deal for renewable generators aims to enhance the value of distributed generation "embedded" in local electricity networks -- of which renewable energy schemes are a typical example.

"This enhanced value will enable greater capacities of renewable energy projects to proceed in the open market -- without government subsidy," says the man behind the proposal, Dale Vince, of wind company Enercon UK. It would encourage electricity production nearer the point of demand, with environmental and economic benefits. "Less losses and less pollution as a consequence," he adds.

Vince's proposal centres on charges now levied on electricity suppliers and customers in the UK for use of the local electricity network. These Distribution Use of System (DUoS) charges cover the costs of operating and maintaining the system, as well as distribution losses. They reflect electricity flows from the grid supply point -- where electricity is fed into the network from the National Grid -- down to the lower voltage networks. The charges increase with each consecutive change in voltage. So customers at the lowest voltages bear the highest DUoS charges.

But Vince argues -- in common with most of the renewable energy establishment -- that the current DUoS charging method makes no allowance for generators connected, or "embedded," into the local distribution system at lower voltages. Moreover, if an electricity supplier buys embedded electricity and sells it to local customers within the same network, it, too, is charged DUoS as if the power had come from the grid supply point. This all ignores the reality that embedded generation is used by the nearest electrical load and has therefore avoided the use of system assets. Not only is the supplier paying full DUoS on all its units sold, but so is the nearest load to the embedded generator, he points out. This means the Regional Electricity Company (REC) is overcharging for use of its system.

"It is necessary to have a system in place which reflects real power flows, and credits avoided system costs," says Vince. His solution is an "embedded supplier credit." He proposes that suppliers who contract for electricity from local embedded generators can recover their charges via a rebate from the host REC for the avoided DUoS costs of the number of units they have displaced. Host RECs would continue to charge as usual for all supplies within their distribution system as if the power had come from a grid supply point. Vince maintains that the "'embedded credit" could be introduced without any change to the RECs' billing system. "All units would be charged the DUoS tariff and all embedded units would be credited," he says. "Such a system could be implemented with minimum fuss across the country in all REC areas."

One of the wider implications of the proposal would be the added advantage of making the Non-Fossil Fuel Obligation (NFFO) cheaper. This is because it would reduce the amount by which RECs are repaid their additional costs of contracting for NFFO-generated electricity. The payment they receive is the difference between the reference price -- at present pool selling price -- and the price paid to NFFO contracted generators. By amending the reference price to pool selling price, plus DUoS credit, the amount of subsidy needed for projects would be smaller. According to Vince, some renewable technologies will no longer need any subsidy, while the amount of support for others will be reduced.

Electricity Regulator Stephen Littlechild is expected to pronounce soon on the merits of embedded supplier credits. Last year, Vince, acting as adviser to the Renewable Energy Company -- a green electricity trader -- asked Littlechild to determine whether or not the company had been overcharged for DUoS by its utility, Midlands Electricity. If Littlechild decides in the Renewable Energy Company's favour, Vince believes its effect would be felt by all embedded generators as RECs throughout the country would have to amend their practices. "It is very much a test case," he says. "If it is successful, it sets the principle." He hopes for a decision before the end of next month.

Meanwhile, he is lobbying UK energy minister John Battle. "We are hoping to get some political support for it. A change in the reference price would affect the cost of the government's renewable energy support programme drastically."

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