Delivering energy security has been re-iterated as the number one priority for the Department of Energy & Climate Change (DECC) and as a result they have been reviewing the Capacity Market (CM) mechanism to ensure it remains fit for purpose.
Tightening capacity margins as a result of recent plant closure announcements; a shortage of new capacity being procured through the CM; and concerns over National Grid’s balancing reserve distorting the market has led to some proposed changes being issued yesterday, 1st March 2016:
DECC’s consultation proposes some key reforms, perhaps most significantly:
Further changes have also been proposed including:
Furthermore, new legislation covering diesel engines is proposed and an Ofgem review of embedded benefits is also noted, with potential changes to the charging regime to be published in the summer.
Impact: Although changes won’t be confirmed until the summer, they seem likely to go ahead given DECC’s concerns and priorities. While the reforms may lead to an improved security of supply outlook, it will come at a cost to consumers one year earlier than expected. CM charges are based on consumption between 4-7pm on working days from 1 November to the end of February. Customers with the flexibility to move their consumption away from this period will avoid a proportion of the costs.
The Capacity Market mechanism is one of the key parts of the UK Government’s Electricity Market Reform (EMR) programme and will ensure that there is always enough power generation capacity to keep the lights on, even when demand for power spikes. To find out more visit the Electricity Market Reform (EMR) page on our website.