Ofgem kicked off Project TransmiT, its independent review of the transmission charging and connection arrangements, over a year ago and we could find out in a matter of days, if not weeks, how Ofgem proposes that transmission charging should operate from April 2013 onwards.
To recap, the aim of the TransmiT review is to ensure that there are arrangements in place that facilitate the timely move to a low carbon energy sector whilst continuing to provide safe, secure, high quality network services at value for money to existing and future consumers.
Transmission charging will be dealt with in the first phase of TransmiT and the Scottish Government has been vocal in its support for a move away from the cost reflective, zonal charging regime which exists at the moment to a socialised model under which all transmission costs would be shared equally amongst generators. Under the existing regime, generators north of the border are required to pay higher transmission charges than their southern counterparts who, in some areas, actually receive a subsidy. The Scottish Government and many others argue that this distorts competition in the GB generation sector and hinders the development of renewables in Scotland (and indeed elsewhere).
Ofgem has appointed consultants, Redpoint, to model the impact of the three different core options for transmission charging that have been identified by the TransmiT working group. These options are: i) the status quo; ii) improved cost reflectivity (CRP) model; and iii) a socialised model. Redpoint’s final report will be published alongside Ofgem’s forthcoming consultation due at some point this month (December 2011). It is not known at this stage whether the consultation will simply record the respective costs and benefits with each of the core options or whether Ofgem may also indicate its preferred option.
At the very latest, Ofgem envisage making its recommendations in the Spring of 2012. If this entails a case for reform then it will ask NGET to bring forward the necessary modification(s) at that point. Whilst the original intention was for the outcome of the TransmiT review to be implemented by April 2012, this date has now slipped and the earliest date now expected for implementation is April 2013. It should be apparent therefore that it will be essential for all interested parties to consider carefully their responses to Ofgem’s forthcoming consultation as it could be one of the last significant opportunities that they have to influence the nature of transmission charging for many years to come.
As a taster for what may come in the forthcoming consultation, the following key messages were noted within Redpoint’s draft report. In terms of impact in sustainability, for the same level of support, an improved ICRP model may “encourage some additional renewables investment whilst socialised model could lead to significantly more renewables but may result in less nuclear and CCS”.
The eight week period that will be available for parties to submit their consultation responses will, for many, be a critical period for refining arguments for the transmission charging model of their choice. The forthcoming Ofgem consultation will be one of the most keenly awaited consultations for some time.