Select Committee on Environmental Audit Minutes of Evidence


Letter to Callum McCarthy, Chief Executive of Ofgen, from the CHPA and other organisations[9]

  The Association and colleagues here who have participated in the Consolidation Working Group (CWG) have carefully considered the findings presented in the final report of the Consolidation Working Group that the DTI asked OFGEM to facilitate.

  Having consulted with its members and other parties that are seeking to cope with the impact of NETA on their business, the Association and those who have endorsed this letter (see below) do not feel able to endorse or be associated with the outcome of the Working Group.

  This is because:

    —  the report does not present solutions that are consistent with the task set at the outset of the market reform process, namely that NETA should deliver "encouragement for Combined Heat and Power and renewables generators" (DTI Press Release, 8 October 1998);

    —  the report places undue emphasis upon a view supported by a minority of CWG participants, namely that the problems faced in consolidation will be or are capable of being addressed through purely limited "technical" adjustments;

    —  the report fails to properly reflect the majority view that:

      —  the commercial factors such as the scale of imbalance price risk and the exercise of market power;

      —  the constraints on consolidation arising from a lack of competitive markets for smaller generator benefits; and

      —  the need to consider wider solutions such as a "single cash-out price",

    were not properly examined. This results in a report that implies that a workable consolidation option has been developed, and that consolidation itself will now "fix" NETA.

  The Association is particularly concerned that nearly four years on since your team first presented consolidation as its "preferred solution" to the challenges posed by NETA for CHP and renewables, optimal commercial solutions are not to hand. Indeed, the current position fails to reflect the scale of the impact of NETA on smaller generators, specifically (as OFGEM's initial report highlighted) that power exports from smaller generators have fallen by 44 per cent since NETA Go Live, with output from CHP plant down by 61 per cent.

  The way in which OFGEM is, I am advised, selectively presenting CWG participants' views to the Government cannot but lead one to conclude that there is no real commitment within OFGEM to delivering the brief the Government set at the outset of the reform of the electricity market. Indeed, this view is reinforced by the recent acknowledgement that the original brief that market changes should encourage CHP and renewables was actually set aside by your NETA Programme Team.

  Should OFGEM persist with this approach, there is a strong risk that the small generator agenda will continue to be dominated by technical minutiae of consolidation, which will displace the vital debate on the commercial impact of NETA and further delay the prospects of an effective solution for small generators.

  In order to help make progress, the Association is making its views known to both the DTI and DEFRA. We are seeking an urgent meeting with them to review matters.

9   Signatories of the letter were: David Green (Director, CHPA), Nick Goodall (Chief Executive, British Wind Energy Association, David Byers (Chief Executive, Renewable Power Association, Gez Williams (Head of Purchasing, British Sugar), Philip Jackson (Managing Director, Slough Heat and Power), Alex Green (Head of Trading, Smartest Energy) and Juliet Davenport (Commercial Director, Utility Link). Back

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