The Government has announced its intention to buy a significant volume of electrical generation capacity in the Capacity Market auctions this winter. But what is the Capacity Market and what does it mean for energy generators?
The delivery of secure, sustainable and affordable electricity: an ambitious goal set by the UK Government. In order to achieve this it is recognised that there needs to be massive investment in new generation projects, innovative technologies but also the utilisation and management of existing assets on the network.
On 8thJuly 2016, the Government announced its intention to buy an increased amount of electrical capacity in the forthcoming Capacity Market auctions. The Capacity Market is billed as the most effective device in dealing with the issues faced by the network by capitalising on existing capabilities as well as introducing new technologies and investment in the most cost effective manner. Importantly, the Capacity Market will enable National Grid to “‘keep the lights on’ across the UK even during periods of high demand including dark winter evenings.
The rise in use of intermittent renewable technologies, such as wind and solar power, presents its own issues. The grid network is slow to change and was historically designed to deal solely with synchronous technologies (such as coal-fired power stations) and the changing generation mix has lowered the grid’s resilience to large changes in load or generation and the Capacity Market allows for electricity capacity to be bought in advance to deal with these issues.
The Government intends to buy:
- 53.8GW in the early capacity auction for delivery in 2017/18;
- 300MW of turn-down Demand Side Response in the Transitional Arrangements auction for delivery in 2017/18; and
- 52GW in the T-4 auction for delivery in 2020/21.
The Capacity Market was introduced in 2014 with auctions taking place annually. Generator owners interested in participating in the capacity auctions stipulate the generating units that they would eventually commit to delivering in the form of a “‘capacity obligation’. If successful in the auction, generators profit from a guaranteed income and the encouragement to invest in new technologies and/or keep existing generation on-line. The results of previous capacity market auctions have mainly awarded support to diesel, gas, coal and other conventional generation plant, but with increased capacity targets this year the industry will be hoping there is more cash in the pot to fund important new build projects “ including storage.
This winter will see three Capacity Market auctions taking place for various delivery windows. The third T-4 auction, for the delivery year 2020/2021, will take place in December 2016. An early auction for the delivery year 2017/2018 is due to take place in January 2017 and the second Capacity Market Transitional Arrangements auction, for delivery of capacity in 2017/18 will take place in March 2017 and is specifically intended for turn-down Demand Side Response.
Energy and Climate Change Secretary, Amber Rudd has stated onwww.gov.uk:“We are taking the action needed to tackle the legacy of under-investment in our energy infrastructure, build a system fit for the 21st century and ensure our country’s long-term energy security. As part of this, the Capacity Market drives down costs and ensures we can meet our energy demand at the lowest possible price for bill payers.”
TNEI is a specialist energy consultancy with a full understanding of the issues faced by the electrical network and offers innovative and effective solutions in delivering energy related developments throughout the UK. We offer site finding, feasibility, engineering and all related consenting support utilising our extensive experience in the energy sector throughout the UK and beyond. If you would like any further information about how TNEI can support generator developers or suppliers in future Capacity Market auctions, please contact:Gordon McFadzean, Senior Consultant orJason McGray, Principal Consultant.
