If you’ve been involved in any CHP/DH feasibility studies you will probably know that many projects are quite marginal. The high cost of building a heat network that has to compete with an existing gas network means that that very few projects are huge money spinners. One of the most critical variables is the value of electricity generated. And given the often derisory price for electricity exported any additional payments that CHP can obtain for providing grid services are often critical. These include payments for Stor, Capacity Market, and Triad.
These payments will become even more important if CHP is to play a role in backing up intermittent renewable electricity generation. In the future as renewables increase their penetration of the grid, gas CHP embedded in local distribution networks, combined with heat pumps, could either provide generation when wind and sun energy are low or demand when there is excess from these sources. For this to work grid service payments will be needed to ensure CHP still stacks up on much lower run hours.
It is therefore dismaying to find that Ofgem are proposing to remove Triad payments from embedded CHP plant. Triad payments (in the form of Transmission Network Use of System (TNUoS – and a smaller Balancing charge) charges are how the National Grid charges for the cost of its upkeep. Every half hourly metered nondomestic customer in the UK contributes to the upkeep cost by paying a charge relating to their kilowatt hour usage during three half hour periods in a year – the Triad periods. (Generators connected to the Transmission System are also charged). These are chosen retrospectively as the three half-hour periods with the highest electricity demand on the grid (between November and February separated by 10 days). The logic of paying embedded CHP operators during these triad periods is that generating electricity directly into the local distribution network CHP reduces demand on the National Grid. In exactly the same way if you are a consumer connected to the local distribution network and you’re able to reduce your demand during the triad periods then you are also reducing demand on the National Grid. For a 1 MWe CHP plant in London triad revenue amounts to around £50,000 a year – not a huge amount but potentially critical in tipping a project into financial viability.
Ofgem’s proposals are a step in the wrong direction. They will make low carbon heat networks even more difficult to justify financially and move the goalposts in a way which is favourable to large plant which overwhelmingly dumps its waste heat rather than putting its to useful purpose.
You can read Ofgem’s rationale here:
Make your views heard by writing to Ofgem by Friday 23 September 2016. Contact details: Dena Barasi (email@example.com) or Andrew Self (firstname.lastname@example.org).