Ofgem has said its plans over embedded benefits paid to generators will be published early next year.

In an update, the regulator said it had received 145 responses to its July Open Letter which expressed its concerns over embedded benefits and particularly that the rising TNUoS demand residual payments to embedded generators may be unsustainable.

In the update, Ofgem said it still considers the payments to be a “major concern”.

“We think they are larger than distortions from the other types of embedded benefits and increasing. We remain concerned that this distortion is having an impact on the capacity and wholesale markets, driving up costs to consumers. Our current view is that taking early action to address rising demand residual payments is likely to be in consumers’ interests,” says the update.

Ofgem said many respondents to its Open Letter had recommended it should launch a Significant Code Review to look at the rising TNUoS demand residual payments alongside other issues.

‘Risk of considerable delay’

Although Ofgem said it does intend to carry out a wider review it said its current view is that postponing a decision on the modification proposals pending a wide-ranging review of network charging for embedded generation would “cause considerable delay to such reform, if required.”

“We recognise the desire from industry to consider wider reform of the regulatory and market arrangements governing the energy system, and we will set out our initial thinking on this in our draft Forward Work Programme later in December.”

Ofgem said it will publish a ‘minded to’ decision and draft impact assessment on the code modifications for consultation in early 2017, with a final decision following after that in time for any changes to be implemented by April 2018.

It will also set out its proposed way forward on the further work on network charging in early 2017.

SmartestEnergy has argued that a piecemeal review of embedded benefits has the potential to create more distortions than it solves. It believes a wide-ranging impact assessment is imperative along with analysis to ensure that the overall cost to consumers does not increase if embedded generation becomes more expensive or even unviable.

> Read the update letter in full

> Read SmartestEnergy's comments on the issue