8 April 2002 – Brian Wilson, UK Energy Minister, has announced plans to help smaller power generators operate more effectively under the new electricity
trading arrangements (Neta). Small-scale generators, have been suffering under Neta’s balancing mechanism.

Wilson, publishing the Government’s response to a DTI consultation exercise on the issue, said, “We want to see the development of a very strong and vibrant smaller generator sector with a level playing field between the smaller and larger generators.

The plan suggests that Ofgem and the DTI work closure together in recognising and addressing the benefits embedded generation offers, such as the fact that they do not need the national grid and how generators access this benefit commercially. It is hoped that such moves would help the profitability of embedded projects and also stimulate interest for new entrants.

The minister said, “I recognise that concerns remain that go beyond the removal of technical barriers. I know many smaller generators are still concerned about whether Neta is properly cost reflective and whether they are being unfairly penalised, as well the financial risk of not being in balance. I am also aware that smaller generators feel there are wider commercial issues that place them in a weak position in the market and in particular hinder the development of
consolidation services”.

A consultation document was published last November seeking views on proposals to address the impact of Neta on smaller generators.

The DTI wishes to encourage the entry of new independent consolidators into the market, to allow smaller generators to group together to spread risk and reduce costs. The government also want to address the administrative burdens faced by smaller generators. It proposed to make funding available to provide advice for smaller generators. Another feature of the proposals is allowing smaller generators to notify their predicted output closer to ‘real time’. Ofgem is currently looking at this proposal.

The government believes this should help smaller generators manage their risk and reduce exposure to imbalance prices. However, one of the most relevant, and yet hardest to reconcile, problems faced by embedded generators is imbalance risks faced under Neta. The DTI had asked Ofgem to assess the issue of ensuring imbalance prices were genuinely cost reflective as part of a review of the first year of NETA. It is this that small scale generators have been crying out for and it is this that will be most difficult to address as it underpins the whole Neta process, which excluding the plight of small scale generators, has been viewed largely as a success by the industry.

Wilson added, “We must remember the fundamental principles underpinning Neta – a liberalised electricity market and a framework which allows genuine competition at wholesale level. The introduction of Neta, together with other reforms, has led to a significant reduction of wholesale electricity prices, and is already leading to significantly lower prices for customers.”