GDN exit capacity mechanism is failing, says British Gas

The exit capacity incentive for gas distribution networks (GDNs) is failing to provide value for money for consumers, big six energy supplier British Gas has said.

British Gas said in response to an Ofgem consultation that it is concerned the current scheme, incentivising GDNs to book less gas capacity from the national transmission system than their forecasted target, is not resulting in cheaper prices for consumers.

It says it is not encouraging efficient behaviour as there is no incentive within the scheme to lower the actual costs of booking capacity as these are fully passed on to consumers.

British Gas said it would expect the incentive to ensure that if GDNs are able to beat “appropriately calibrated targets” then they would be able to retain a share of the outperformance and pass the rest on to consumers, resulting in cheaper prices.

However, although exit capacity bookings “seem to have reduced” during the current price control, customers are worse off because the incentive payments being made to GDNs are greater than the actual cost savings of the reduction, the supplier added.

“The exit capacity baselines clearly do not reflect the changing needs of customers as they do not reflect the reduction in peak capacity requirement from customers,” it said.

Based on its own analysis it recommends Ofgem restructures the scheme to better align incentives with actual cost reductions, flat exit capacity allowances should be rebased to reflect the changing needs of customers and the reduction in peak day demand that would automatically follow from the funded reduction in leakages over the price control.