Guidance Note on Network Use of System Charges for
Autoproducers and CHP Producers
CER/03/238
25 September 2003
1. Introduction
On 18th July 2003 the Commission published a proposed direction
(CER/03/167) for consultation on the issue of extending the principles
underlying the direction on Autoproducers (CER/02/37) to all licensed
Combined Heat and Power (CHP) producers, regardless of whether or not the
electricity generated by these CHP producers was essentially for their own
use. The consultation paper outlined the Commission's reasoning behind the
proposal and addressed practical issues on its application.
The Commission believes that taking measures to promote CHP through the
application of Autoproducer charges is a reasonable policy instrument for
realising its statutory duty to promote the efficient production of electricity
and to take account of the protection of the environment. It is generally
accepted that CHP is an efficient method of producing electricity and has
environmental benefits. Indeed, as stated in the consultation paper
Sustainable Energy Ireland and the Government, in its National Climate
Strategy, identifies increasing the penetration of CHP generation as one
measure required for Ireland to achieve its Kyoto emission targets.
The Commission received several comments on the proposed direction. In
particular, the submissions addressed:
- the justification for retaining the Autoproducer direction
- the definition of an Autoproducer
- the possible consequences of private networks and gaming.
The Commission has considered the various responses and has made some
amendments to the proposed direction. The Commission’s position on the
main issues raised by respondents is set out below:
2. Is the ‘special treatment’ of Autoproducers justified?
Respondent
One respondent maintained that there is no economic or technical case for
the application of the preferred tariffs for Autoproducers and expressed that
any preferential treatment should be for legal reasons or policy driven. The
respondent felt that there was no justification for retaining the principles of
the existing Autoproducer direction.
Commission Position
Clearly this question only now arises in relation to those Autoproducers who
are not also CHP producers.
The Commission issued the Autoproducer direction in response to concerns
expressed by some market players that Autoproducers were being unfairly
treated under the existing tariff regime. It was argued that an anomaly
occurred whereby Autoproducers were subject to both demand and
generator capacity charges in addition to network usage charges.
The tariff structure which predated the April 2002 Direction provided for
demand and generation users of the network but did not recognise the
special position of an Autoproducer. The rationale behind the Autoproducer
direction was to overcome the duplication of charges by determining the
predominant use of the network connection and charging the Autoproducer
as a generator or demand user accordingly. For simplicity, the Commission
extended the existing charges and policy for both demand customers and
generators to cover Autoproducer charges, rather than devising specific
charges for Autoproducers. The Commission has always seen this issue as
essentially a tariff policy matter, as opposed to evidence of conscious or
manifest unfairness in the treatment of autoproducers by the system
operators. The Commission accepts that there was a legitimate rationale
behind the former charging regime for Autoproducers, but it does not share
this rationale.
The Commission believes there is a strong case for continuing to adapt the
tariff burden facing Autoproducers by focusing on the predominant use they
are deemed to be making of the networks rather than charging them
separately on both their exporting and importing activities with no offsetting
between the respective charges. In essence, the Commission feels that the
principles underlying the Autoproducer direction are appropriate and result
in a more equitable tariff which better reflects the dual role that
Autoproducers play in their use of the networks.
3. How to measure “essentially for its own use”.
Respondent
Several respondents asserted that further clarification of the definition of an
Autoproducer was required to facilitate the fair implementation and
safeguard against the misapplication of the direction. In essence, the
respondents stressed the need to ‘pinpoint’ the meaning of the “essentially
for its own use” requirement. The respondents proposed simple and
transparent rule sets for establishing eligibility criteria, which would be
easily applied by system operators and easily understood by connecting
parties. It was argued that this would expedite the process of the network
operator approving the network user's Autoproducer status and minimise
potential subsequent disputes.
One respondent’s proposal for such a rule set was that a connecting party
should be deemed to be generating essentially for its own use if the installed
generation capacity is less than twice the Maximum Import Capacity (MIC).
A second respondent proposed that if a connecting party’s Maximum Export
Capacity (MEC) is less than 1.5 its Maximum Import Capacity it should be
deemed to be generating essentially for its own. It was also suggested that
the qualifying criteria should be changed from being based on the MIC and
MEC to criteria based on site consumption and site imports.
Commission Position
Again, this issue only now arises for autoproducers who are not also CHP
producers.
In the Autoproducer direction the Commission based the definition on the
term “Autoproducer” as defined in Directive 96/92/EC but differentiated
between Autoproducers for networks charging purposes by reference to their
contracted MIC and MEC. The definition of an Autoproducer was based on
the condition of a person generating electricity ‘essentially for its own use’
and the requirement for such electricity to be consumed on a single
premises. The underlying rationale for applying the appropriate MEC and
MIC based charges to Autoproducers was to determine the predominant use
being made of the network.
Although site consumption would accurately establish if onsite generation
were essentially for one’s own use, this data would necessarily be
retrospective and would entail onerous metering requirements on the part of
the network operators. The MIC and MEC of a connecting party is seen as a
practical and fair means of establishing the intended predominant use of the
network. It is also consistent with the policy to ensure that customers
consider their position carefully and responsibly before deciding on their
required MEC or MIC.
The Commission understands the operators’ concerns to establish a clear
and transparent rule for deciding eligibility. However, setting a hard rule set
to decide eligibility ignores the potential complexities of individual cases.
Notwithstanding these shortcomings of a hard rule set, the Commission is
agreeable to setting out in this Guidance Note approximate guidelines for
determining eligibility. The network operators should proceed on the basis
that a connecting party is generating essentially for its own use (i.e. an
autoproducer) where the MEC is less than twice the MIC, unless either the
operator or the customer can point to special circumstances which would
warrant departing from this presumption. If the parties cannot resolve the
matter they can refer it to the Commission for determination under Section
34 of the 1999 Act.
4. Does this direction allow for private networks?
Respondent
Two respondents were concerned that the definition of an Autoproducer in
the proposed direction, together with the definition of Single Premises as in
the Act, could be interpreted as allowing for private networks. The
respondents argued that the proposed direction was not ringfenced to
specific circumstances where the load customer contracts an Autoproducer.
One respondent maintained that the definition of Single Premises should be
reviewed in light of the change to the definition of an Autoproducer. The
respondent proposed the following definition:
“Single Premises” means one or more buildings or structures, occupied and
used by the same person or by another person on his behalf and under
contract to him, where each building or structure is adjacent to, or contiguous
with, another of the buildings or structures.
Commission Position
In the course of applying the Autoproducer direction the issue of an
Autoproducer sub-contracting the operation and maintenance of the
generating unit to a third party was raised. In certain cases the generating
unit on the customer’s premises is provided by the third party and it is the
third party which holds the generating licence, the customer having a
contract for the output or a portion of the output. The Commission has
amended the definition of an Autoproducer to cover this scenario.
The Commission does not believe that a substantial case has been put
forward which merits changing the definition of Single Premises from that
provided in the Act. In any event the Commission considers it has little or no
discretion to amend the statutory definition of Single Premises.
The legislation does not permit private networks. The distribution and
transmission systems are defined in the Act and both the TSO and DSO are
issued with exclusive licences to operate the transmission and distribution
systems, respectively. It is the Commission’s position that the definition of
an Autoproducer and Single premises, as in the direction, should not be
misconstrued as allowing for private networks.
5. Is the direction open to gaming?
Respondent
Both network operators have expressed their concern that the direction may
be open to gaming. The DSO has proposed amendments to the Connection
Agreement to safeguard against gaming and the possible misapplication of
the direction.
Commission Position
The Commission will examine all proposed safeguards against the threat of
gaming. The Commission believes that such safeguards can be implemented
through the connection agreements and will work with the operators to
achieve this.