InterGen's Statement Regarding Ofgem's Decision on Transmission Charging
Annual transmission costs will increase by £5 to £7/kilowatt hour
Ofgem’s recent decision on transmission charging will increase costs for consumers, discriminates against domestic transmission-connected generation and further undermines investor confidence in large-scale generation investment in the UK.
In late November 2017, Ofgem rejected CMP 261 (a code modification raised by the industry in respect of historic overcharge of transmission charges to generators). This decision is now the subject of an appeal to the UK Competition & Markets Authority and a decision is expected in February 2018.
Based on recent independent analysis, if the decision is upheld and applied to future charges, the average annual transmission costs for onshore transmission connected generation will increase by £5-7/kW per annum.
Existing and new transmission connected generation would need to recover these costs through equivalent higher bids in the capacity auction (the costs of which are passed through to consumers by suppliers). The auction commences on February 6th, but the results of the appeal will not be known until February 12th, creating significant uncertainty for bidders. Based on a capacity requirement of 50GW, the total additional annual cost to the consumer of the Capacity Market would be over £250M.
Mark Somerset, vice president at InterGen, said, “The Ofgem rejection of CMP 261 is very disappointing, and badly timed. Large capital projects rely heavily on policy and regulatory certainty to secure investment. We estimate this decision could increase the annual cost to the consumer of the Capacity Market by £250-300M. Moreover, owners of existing and new interconnectors will receive a windfall from higher capacity payments as they are exempt from transmission charges. Interconnectors continue to benefit unfairly from a highly favourable regulatory regime relative to domestic generation in the UK”.
About InterGen UK
InterGen is one of the UK's largest independent generators, operating a portfolio of three flexible gas-fired power stations totalling 2,490 MW; an investment of some £2.1 billion. These stations are located at Rocksavage (Cheshire), Spalding (Lincolnshire) and Coryton (Essex). Additionally, in December 2016, at the T-4 Capacity Market auction, InterGen won a 15-year capacity market agreement to construct a 300 MW open cycle gas turbine (OCGT), an expansion of the existing Spalding site. InterGen is also ready to build new closed cycle gas turbine (CCGT) projects at sites in Spalding (Spalding Energy Expansion) and Essex (Gateway Energy). The new CCGT stations, which are shovel-ready and will compete in the upcoming T-4 auction, will create around 3,000 jobs over their build programmes.