Ofgem’s decision risks increased prices to consumers

10th Jun 2020

 

Ofgem’s amendments to the Gas Transmission Charging Regime are set to significantly increase costs on gas storage operators, which will lead to increased volatility in energy prices, resulting in consumer price spikes.

The new regime, which is supposed to deliver more stability and predictability in network tariffs, will deliver prices substantially higher than the tariffs published in Ofgem’s impact assessment. 

The storage industry is already set to suffer from the government’s decision in May to delay the business rates 2021/22 revaluation by a year, which will result in GB storage operators being charged £15m more, annually than their liability because of the transition relief scheme. 

Roddy Monroe, Chair of the Energy and Utilities Alliance, Gas Storage Operators Group, GSOG said; 

“These amendments will lay multi-million pounds’ worth of higher costs on gas storage operators already reeling from the punitive business rates, which is a major blow to all of us who had hoped for a more balanced outcome. Ofgem’s decision will directly increase the risk of further storage capacity being mothballed or indeed, sites closing for good.“ 

“Higher network costs will also inevitably lead to lower utilisation.  This in turn will result in price instability at times of system stress, increasing the likelihood of price spikes and higher prices for consumers.” 

“This is bad news for both storage operators and consumers.  As we transition to a net zero carbon future, the UK will need energy storage investment, most obviously to meet home heating demand through green gases. These amendments will put at risk future investment in development opportunities. This is remarkably backward looking and all stakeholders should be rightly concerned.” 

“The UK already has significantly low levels of gas storage compared to similar mainland European economies, at less than 2% of annual demand versus 25% on average.” 

GSOG ask that;

  • Government alleviate the impact of Ofgem’s decision by ending the business rates Transition Relief scheme with effect from 31st March 2021, as recommended by the Treasury Select Committee following its 2019 Inquiry.
  • And, that the proposals tabled to restore some of the lost competitiveness of GB storage through fairer network charges are considered as soon as possible.