LONDON (Reuters) - Britain's energy regulator Ofgem said on Tuesday it will reduce subsidies to some small-scale power producers that provide back-up during peak demand, a move it previously said would cut household electricity bills by about 20 pounds a year.
Consumer electricity prices are under scrutiny in Britain after some of the big six providers, including Innogy-owned Npower and Iberdrola (MC:IBE)'s Scottish Power, announced price rises this year.
In a March consultation document, Ofgem said reducing payments under its proposal would cut household bills because the cost of the subsidies is included in overall network fees charged to power companies, which they pass on to consumers.
Overall, the subsidies cost customers around 370 million pounds last year.
Under the changes, power generators with less than 100 megawatts (MW) of capacity embedded into local power grids would see payments they receive for providing electricity during peak demand reduced drastically to between 3 and 7 pounds per kilowatt (kW) from about 47 pounds/kW.
The changes would be introduced over three years from 2018.
Large power producers have said that the subsidies are too generous and distort the market.
So-called embedded generators have grown rapidly over the past few years thanks to rules that let them avoid the costs of using and maintaining the national transmission network.
"Ofgem's view is that the level of the payment is distorting the wholesale and capacity markets and if no action is taken the distortion will increase," it said.
That payment was forecast to increase over the next four years to 70 pounds/kW.