DECC is seeking views on a number of changes to the electricity Capacity Market (CM), the way in which we ensure adequate electricity capacity is available in the UK. The consultation builds on the October 2015 review and further learning from the second Capacity Market Auction in December 2015. The consultation covers proposed changes on areas such as new build assurance, termination fees, avoiding accumulation of State aid, eligibility for Transitional Arrangements, prequalification timings and reviewing the Capacity Market Rules. It also covers proposals to introduce a supplementary capacity auction in 2016 for the delivery year 2017/2018.
The Capacity Market is a necessary addition to the market to guarantee that there is sufficient electricity to maintain supply in the absence of a more robust and longer term plan to address the energy requirements of the UK. This consultation seeks views on proposed changes to the Electricity Capacity Regulations 2014 (“the Regulations”) and the Capacity Market Rules 2014 (“the Rules”). This consultation builds on the October 2015 consultation and further learning from the second Capacity Market Auction in December 2015. It primarily focuses on a number of further reforms designed to ensure sufficient, reliable capacity is available in 2017/18 and beyond, and make a small number of additional adjustments to the framework in the interests of clarification and simplicity, namely:
- New build assurance by introducing more stringent controls over commitment to deliver capacity by the agreed delivery date;
- Increasing termination fees for Capacity Market Units (CMU) that renege on their delivery capacities;
- Avoiding the accumulation of State aid by restricting involvement in the CM for those that have utilised finance from tax advantaged incentives such as the Enterprise Investment Scheme (EIS);
- Amending the eligibility for Transitional Arrangements for Demand Side Response (DSR) to those projects that require load shifting or a reduction in consumers energy reduction;
- A change to the review of the Capacity Market Rules which currently allows for self-regulation; the recommendation is that this is passed to the Secretary of State for independent review.
In addition, the UK energy market conditions have changed considerably since 2014 when the original capacity market was designed with greater operational losses for thermal generating plants being realised causing early closure. The consultation also covers proposals to introduce an early capacity auction in 2017 for the delivery year 2017/2018 in recognition that there is a need to mitigate this risk to supply.
Following the consultation, the Government will amend the Regulations and the Rules in time for the opening of the 2016 Capacity Market prequalification period. The outcomes of this consultation will be implemented with the outcomes of the consultation which concluded in December 2015 and are therefore now proposing a plan of reform for the CM in three important respects:
- Buying more capacity, and buying it earlier. It is expected that more capacity will be purchased in the next CM auction in December 2016;
- Tightening delivery incentives on those who have agreements to deliver against them and to penalise those that fail more severely;
- Tackling how wholesale prices impact in the short term on energy security, holding a new auction to bring forward the first CM delivery year to 2017/18.
The deadline for response is 1st April 2016. We are formulating our response to the consultation and would welcome your feedback to incorporate into this.
To have your say, please email the compliance team at compliance@carbon2018.com or alternatively complete the contact form. To discuss this further please call Melanie Kendall-Reid on 01252 87 87 22.