OFGEM SLASHES TRIAD PAYMENTS – HOW DOES THIS AFFECT YOUR PPA?
Ofgem has decided to reduce the Triad payments that some small electricity generators receive for producing electricity at peak times.
Firstly, what is a Triad? Triad refers to the three half hourly periods of peak electricity demand each year (generally between November and February), these are used by the National Grid to determine the charges for demand customers with half-hour metering and payments to licence exempt distributed generation. A Triad payment is an embedded benefit that is included in your Power Purchase Agreement (PPA) and is the payment that you receive if you are exporting electric during three half hour periods of peak electricity demand.
Each Triad tariff is dependent on the sites ‘tariff zone’ and the amount of electricity exported within the Triad period, but typically generators currently receive tariffs of around £47/kW. Ofgem believe that the current levels of Triad payments are distorting the wholesale and capacity markets which will only keep increasing if payments are not lowered. In order to make systems more efficient, Ofgem have accepted an industry proposal to lower payments to between £3/kW and £7/kW over a three year period which will start in 2018.
To put the changes into perspective; in the 2015/16 Triad period, a site exporting 80.667 kW based on a tariff of £30.989 received £2499. With the tariff reduced to £3, this Triad payment would fall to just £242. Not all generators will export during a Triad period, however, for sites which have installed additional technology to ensure their site is generating permanently (enabling them to maximise the benefit of Triad periods), the changes could have significant impact on your planned investment.
With the PPA market remaining volatile and continuously hitting record lows, we recommend that generators seek advice and guidance when renewing their electricity sales contract. Having had key embedded benefits such as Triad drastically cut and with market rates being so low, there is going to be more pressure on PPA providers to over-inflate estimates on embedded benefits, resulting in generators receiving lower levels of return than anticipated when reaching the end of a contract.