Embedded benefits: what on-site generation is really worth

Embedded benefits are the payments and avoided charges an electricity generator earns by connecting to the local distribution network rather than to the national transmission network. A generator embedded in the distribution system reduces the demand its region draws from the transmission grid, and historically it was paid or credited for that reduction through several parts of the charging regime. For on-site solar or battery generation on a commercial site, those benefits once added materially to the value of a generator that exported, and to the peak import a site could avoid. Regulatory reform between the late 2010s and 2023 fixed or removed most of them, so the real worth of on-site generation today sits mostly in the charges a site avoids on the electricity it no longer imports, a figure that depends on the individual site.

For a consultant, this is the gap between a generic explainer and a usable number. The explainer can name the benefits; the number comes only from the site's own data.

What counts as an embedded benefit?

The term covers a group of charges that distribution-connected generation reduced for its supplier, with the value passed back to the generator. The main ones were:

• Avoided transmission demand charges. Generation that cut its region's demand on the transmission network at the times of system peak reduced the supplier's TNUoS demand charge, the charge for the national high-voltage grid.
• Avoided balancing charges. Embedded generation reduced the demand against which balancing services use of system (BSUoS) charges were levied.
• Reduced transmission losses. Power generated close to where it is used travels a shorter distance, so less is lost on the transmission network.
• Distribution generation credits. A distribution-connected generator that exports can receive credits against the local DUoS charges, rather than paying them.

What the reforms changed

The largest of the historic embedded benefits, the value a generator held in cutting its region's demand on the transmission network at system peak, was reduced by a separate change before the wider review. Under modifications CMP264 and CMP265, the TNUoS demand residual was removed from the embedded benefit over the three charging years from 2018 to 2020, as set out in Ofgem's decision on CMP264 and CMP265.

Ofgem's Targeted Charging Review changed how the residual part of network charges is recovered. Under the review, residual charges moved to fixed bands set by a site's agreed capacity, rather than varying with how or when it draws or exports power. The decision also removed generators' liability for the transmission generation residual and changed the embedded benefit that smaller distributed generation held in balancing charges. This is set out in Ofgem's Targeted Charging Review decision, with the banded charges phased in by April 2023.

The effect for on-site generation is that the parts of the charging regime a generator once reduced by exporting or by cutting demand at peak are now fixed. A site pays the band it falls into whatever its generation does, so generating no longer moves that part of the charge. What remains of the embedded benefits is smaller and more specific to each site, such as the distribution generation credits on exported power.

What on-site generation is worth now

With the embedded benefits cut back, the value of on-site generation on a commercial site comes mostly from behind the meter: the charges the site avoids on each unit of electricity it generates and uses itself instead of importing. That avoided cost is built from several parts.

The largest is the wholesale cost of the energy the site no longer buys. On top of that sit the network charges on imported power: the DUoS red-band rate on the local network, which applies on weekday late afternoons and early evenings throughout the year, and the TNUoS peak-demand element on the national one, which falls on winter weekday late afternoons and early evenings.

Policy costs and levies form the last part. One of them is the Climate Change Levy, a tax on business energy use. The levy applies to electricity a site is supplied with through its meter, at a main rate of £0.00775 per kWh to 31 March 2026, rising to £0.00801 per kWh from 1 April 2026, as set out in HMRC's Climate Change Levy rates. Electricity a site generates and consumes on site is not supplied through the meter, so it does not attract the levy, and each unit of on-site generation that displaces an imported unit saves it.

A unit exported to the grid is worth less than a unit consumed on site. The export price pays the wholesale value of the power plus any distribution generation credit on the exported units, which stays small. A unit used on site avoids that same wholesale cost plus the network charges and levies carried on imported electricity, so the share of generation a site uses itself matters as much as how much it generates.

Why there is no single per-site figure

The worth of on-site generation cannot be stated as one rate per kW installed, because each part of that value varies with a different feature of the site.

The wholesale saving follows total self-consumption across the year. The network and levy savings follow when the generation falls within the charging periods. Solar output peaks around the middle of summer days. On a summer late afternoon it still offsets the grid import that falls in the DUoS red band, alongside the full wholesale and levy saving on every unit it displaces. The TNUoS peak-demand element falls on winter weekday late afternoons and early evenings, after daily solar output has dropped away, so solar displaces little of the import in that period. A battery charged at other times and discharged through those periods cuts grid import during them, so it cuts the winter TNUoS element and the evening portion of the DUoS red band. How much of its generation a site consumes rather than exports, its region, its agreed import capacity band and its tariff all move the total.

This is why the number a consultant needs comes from modelling rather than from a table. Lupa works the value out against a site's own half-hourly consumption data, and the platform sets out what each combination of solar and storage saves across the year, split by the part of the bill each saving comes from.