SSE has lodged an appeal with the Competition and Market Authority (CMA) against Ofgem’s recent approval of a code modification removing residual transmission charges from generators.
The company said the modification is based on “flawed and incorrect technical application of the rules and will unfairly burden generators with increased costs”.
Ofgem instructed the change to be made as part of its wider decision to shift residual network charges entirely onto final demand, partly in an effort to remove any disparity between different types of generation.
Residual charges are used to recoup any leftover costs that are not recovered through the forward-looking charges that are intended to reflect users’ impact on future investment in the power grid.
For the time being, residual transmission charges are levied on both generation and demand, with the majority falling on the latter. The charges are applied to transmission-connected generators and distributed generators with a capacity of more than 100MW.
To ensure compliance with EU regulation stipulating that average transmission charges should remain within the range €0-2.50/MWh, the transmission generation residual is currently set at a negative value meaning eligible generators actually receive a credit. The rule has been transposed into domestic law following Brexit.
Following a significant code review looking at residual charges – also known as the Targeted Charging Review – Ofgem decided to shift the charges entirely onto final demand and accordingly instructed National Grid Electricity System Operator to submit a modification to the Connection and Use of System Code setting the transmission generation residual to zero.
The proposal, designated CMP327, was amalgamated with another code modification named CMP317, which sought to make adjustments to the types of assets covered by residual transmission charges. The combined modification was approved by Ofgem in December and is due to take effect on 1 April for the beginning of the RIIO2 price control for electricity transmission.
However, SSE has now filed an appeal against the decision with the CMA. The company said in a statement: “We are supportive of a modern charging regime and infrastructure which will deliver the flexible electricity system customers need for the future, but recent changes proposed by Ofgem are based on flawed and incorrect technical application of the rules and will unfairly burden generators with increased costs, undermining low carbon investment and the UK’s net zero ambitions.”
The aforementioned EU regulation excludes connection charges from the calculation of average transmission charges. CMP317 would extend this exclusion to cover all local circuits and substations.
According to the notice of appeal published by the CMA, SSE contends that this represents an incorrect interpretation of the regulation that goes against its intended meaning. It argues that the implementation of the combined modification would result in average transmission charges exceeding the upper limit of €2.50/MWh.
Responding to the announcement, Ofgem said: “Our analysis indicates that correcting this error of interpretation will benefit consumers substantially, by reducing the amount consumers pay to large generators through their bills, whilst also creating a more efficient system outcome.
“We will defend our decision, and protect the interests of consumers, at the Competition and Markets Authority.
“This appeal has no impact of the other elements of the Targeted Charging Review.”
The CMA will decide whether or not to grant permission to appeal by 26 January and said interested parties have until 9 February to apply to participate.