This payment cost customers around £370 million last year.
Those operators most impacted by this cut are generators that can control when they produce electricity – such as diesel and small gas, combined heat and power plant, and biomass generators, which together account for roughly one third of embedded generation.
Around two thirds of the total embedded generation capacity, mainly renewable generation (solar and wind farms), will not be affected to the same extent because generally they do not receive this payment.
OFGEM confirmed that the payments made to small-scale electricity generators will fall from £45/kw to between £3/kw and £7/kw. The original consultation proposed reducing the benefit to around £2/kw.
This cut is in addition to the over a dozen negative policy changes that the renewable energy and clean tech industry has endured over the past 18 months.
Industry advisory panels that recommended the proposals were comprised of mainly large-scale power developers and large utility companies.
When the proposed changes were announced small to medium sized developers, utilities, and operators were deeply concerned, as were developers of new flexibility technologies that the Government’s National Infrastructure Commission has in the past expressed support for.
Dr. Nina Skorupska CBE, Chief Executive, Renewable Energy Association, said: “This ruthless cut will be damaging to the development of next-generation flexibility and energy storage technologies.
“Additionally, several gigawatts of already installed renewable generation capacity will be negatively impacted.
“This comes on top of 18 months of damaging and sudden policy changes to the sector which are not only hammering the financial viability of new low-carbon projects, but now the viability of existing ones now too.”
Industry observers said that this latest cut will benefit larger, incumbent companies compared to the innovative renewable energy players that have burst onto the market in the past decade.
One commentator said: “This latest OFGEM decision flies in the face of where the market is headed. Other nations are actively supporting the deployment of embedded renewable generation and further decentralisation. They see this as leading to a grid that is cheaper, cleaner, and will strengthen jobs and consumers.