Comment: Changes to embedded benefits - what could this mean for the healthcare sector

Andrew Morris, power originator at Gazprom Energy, explores the implications to the healthcare sector of the decision, by Ofgem, to review charging arrangements for embedded generators, which could see hospitals stripped of much-needed income

Changes to charging arrangements for embedded generators could have far-reaching implications for hospitals and other medical centres

Energy regulator, Ofgem, recently announced that it is reviewing charging arrangements for embedded generators, including transmission networking and Distribution Use of System (DUoS) charges.

Currently, organisations that generate their own power can avoid certain costs by connecting their generator to the distribution networks, which carry electricity within regions from the transmission station to users.

This is as opposed to connecting it to the transmission network, which carries electricity nationally at high voltages.

Currently, organisations that generate their own power can avoid certain costs by connecting their generator to the distribution networks

Recent proposals suggest, however, that these organisations could soon be stripped of such embedded benefits.

The Department for Business, Energy and Industrial Strategy (BEIS) is consulting on changes to embedded benefits, as it’s currently considering changes to the Capacity Market auction scheme, which pays generators who can guarantee back-up capacity during periods of high demand.

As the UK healthcare sector spends over £400m annually on energy, hospitals with local power generation could risk racking up a higher energy bill.

Being an embedded generator means not having to access the transmission network, and therefore reducing overall demand for the high voltage network. Transmission Network Use of System (TNUoS) charges don’t currently apply to embedded generators, as savings incurred by distributing energy locally and not using the transmission network are passed on.

And benefits of being an embedded generator don’t stop there. The Capacity Market auction scheme enables the sale of energy capacity to the National Grid, meaning that local power generation can support national energy supply, and traditionally embedded benefits have rewarded organisations that ‘help’ the system.

The proposed changes aim to give a level playing field for all energy providers and not just favour the smaller players, but it comes at a price for sectors that generate their own energy, like healthcare

But, while onsite energy generation has at large served the purpose of helping meet national demand, Ofgem’s rationale behind the proposed changes addresses other aspects of the wider picture.

In its open letter, Ofgem specified that there is now an inefficient mix of generation, as embedded benefits encourage many to invest in smaller distribution connected generation.

Larger generators don’t have access to these benefits, and Ofgem claims this puts them at a ‘competitive disadvantage’. In other words, Ofgem recognises that there has been a move towards smaller energy projects to meet demand, and it wants to move away from this focus and towards larger-scale power stations focused on securing our energy future.

By not offering embedded benefits it can perhaps be in a better position to subsidise these bigger projects and provide a secure, long-term energy supply.

The Association for Decentralised Energy has warned that these changes could see British industry hit with a £170m bill due to its reliance on local power generation.

And others, like MP Greg Mulholland, have highlighted the impact that this could have on hospitals, as many generate their own power, or rely on local energy supply.

Back in 2013, the National Grid underwent an initiative to encourage NHS trusts to reduce their demand by setting up diesel-fired generators, and we’ve seen over 100 NHS trusts, including Manchester’s The Christie Hospital, invest in embedded generation.

Healthcare is a prime example of sectors that aren’t totally reliant on national transmission networks and often generate energy onsite. It’s a key sector that would be affected by any regulation changes to energy generation, and could be a prime example of what stripping the benefits could mean in terms of the financial position of specific organisations.

Healthcare is a key sector that would be affected by any regulation changes to energy generation

The proposed changes aim to give a level playing field for all energy providers and not just favour the smaller players, but it comes at a price for sectors that generate their own energy, like healthcare.

Ofgem has given a set of transitional arrangements that indicate approaches they might take to bring in the changes, including immediate change and a gradual change. It also points out that it might be implemented quicker for some users, and that one approach could even make some users exempt from the changes.

That said, all organisations generating their own power face the prospect of budgetary challenges in their energy provision over the next few years, and should keep informed of further Ofgem announcements.

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