Proposed changes to the way in which Ofgem rewards industrial users who offer flexibility in their energy demand on the grid are short-sighted, offering minor cost savings but the risk of much higher long-term energy costs, the Association for Decentralised Energy (ADE) has warned.
The warning comes following the network regulator’s announcement that as of 2021 it intends to almost entirely remove the benefits it pays customers who offer flexibility and amend the way it charges for them to access the network; a move that could significantly increase energy costs for those providing what is known as demand side response (DSR) services.
By producing electricity on-site or being flexible in demand, business energy users reduce strain on the grid at times of peak demand and help control energy costs for all users by reducing network maintenance costs.
Currently, the value of this flexibility is recognised and rewarded with reduced or no network charges for those providing flexibility. The preferred approach outlined by Ofgem today will end the ability for business users to avoid nearly all these costs, with users to be charged a fixed charge based on customer segment.
While Ofgem has caveated the announcement with promises of future network incentives for users to provide flexibility, the ADE has labelled the move as short-sighted and at odds with Government’s policy pledges to support the transition to a smart energy system.
ADE Director Tim Rotheray said:
The ADE supports Ofgem’s commitment to ensuring charges are fair but removing benefits today on a vague promise of jam tomorrow isn’t fair and could end up costing all energy users more in the long-term.
Imposing significant cost increases now on top of internationally uncompetitive power costs will hurt industrial competitiveness, is short-sighted and will lead to businesses walking away from providing flexibility full-stop.
At a time when national electricity network costs are forecast to increase from £943 million in 2007 to £3.7 billion in 2021, Dr Rotheray stated Ofgem should be doing everything in its power to incentivise behaviour that keeps network costs down.
We are concerned that Ofgem has failed to recognise the value of flexibility in controlling network maintenance and operating costs, and in looking for savings of £2 a year per household is risking higher long-term costs that could lead to higher bills for all energy consumers.
These major additional price increases, and increases that are to be implemented so quickly, risk souring the idea of a smart system for many – a loss of trust that won’t easily be rebuilt on nebulous promises of a future smart system where helping the system will be properly valued.
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