Below de minimis trading and negative demand

Supplier Charges are charges levied on electricity suppliers to recover the costs that are incurred on behalf of
customers in the market. Currently all charges are applied on the basis of a supplier’s net demand i.e. after deduction of the supplier’s contracted de minimis generation. When a supplier has more generation than demand registered to it under the wholesale market, the wholesale market rules pay it a negative version of all the Supplier Charges, meaning the supplier actually receives these charges rather than paying them:

• Negative Energy (SMP) Charges1 ;
• Negative Capacity Charges2 ;
• Negative Imperfections Charges3 ; and
• Negative Variable Market Operator Charges.

A supplier can reduce its exposure to Supplier Charges by entering into PPA’s with de minimis generators. This
results in extra revenue to the below de minimis generator registered as “negative demand” through a Supplier Unit than that which would be payable to a wholesale registered Generator Unit. These extra payments to generators registered as negative demand are commonly called “De Minimis Benefits”.

Generators registered as negative demand through a Supplier Unit also have no effective Transmission Loss
Adjustment Factor applied to their volume. This allows the generator to choose REFIT support on the basis of their metered generation at the gate, or just with their Distribution Loss Factor applied (as per CER/08/236). Transmission Loss Adjustments Factors are typically negative and are volatile. They represent risk to a generator’s financeable energy volumes.

Proposed removal of de minimis benefits

On 16 February 2017 the SEM Committee issued a Decision Paper4 wherein it decided to effectively remove deminimis benefits from 2020 by levying charges on suppliers’ gross demand rather than their net demand, as is
currently the case. According to the Decision Paper this change to a Gross Demand approach will occur “no earlier than January 2020”.

When the supplier charging basis changes from a Net Demand approach to a Gross Demand approach it will have a negative impact on revenue for de-minimis projects, particularly those that are out of support5 or de-minimis projects in Northern Ireland which receive ROC support6. The Decision is unlikely to affect the overall revenue of de-minimis projects in REFIT as they will be made whole in the PSO. There may, however, be an impact on cash flow management for these projects as the REFIT payments are generally not made until two years after the PSO period in question. Whether this cash flow risk is taken by the supplier or by the generator will be a matter for commercial negotiation in the PPA. In addition the Decision may result in reduced market upside for de minimis generators. This is not an issue now when the wholesale electricity price is low, but it may become an issue if and when the SMP increases above REFIT.