Labour condemns government’s early capacity market auction

Labour has slammed the Department of Energy and Climate Change (Decc) for bringing the capacity market auction forward, saying it will cause consumer bills to “shoot up”.

Decc said its March proposal to bring the capacity market forward received “overwhelming support” from industry stakeholders, and confirmed today that it will proceed with the implementation of an early auction for delivery in 2017/18.

In a letter of determination, energy secretary Amber Rudd also confirmed that a four-year ahead (T-4) auction will be held after 1 September 2016 for delivery in 2020/21.

In a statement issued to coincide with Decc’s confirmation of the new timetable, shadow energy secretary Lisa Nandy slammed the government’s decision, accusing it of “trying to bury the bad news” that the costs would be passed on to consumers.

In a document published today, Decc said: “The government acknowledges the operational challenges faced by suppliers in managing the previously unexpected costs associated with an early auction, and recognises that it is optimal to give suppliers as much notice as possible of policies that will have a bill impact.”

However, it argued that stakeholders, including suppliers, had acknowledged that an early auction is “a necessary step” in order to ensure the security of the UK’s electricity supply in response to “previously unforeseen” market developments – “to the ultimate benefit of customers and suppliers”.

“This will mean it is necessary to recover from suppliers the costs associated with the auction in the 2017/18 delivery year.

“It is not possible to delay recovery of these costs until subsequent delivery years as the settlement body operates on a ‘pay-when-paid’ basis, and therefore requires payments from suppliers in order to make payments to capacity providers for the same period.”

Nandy said the auction was a “massive waste of money”, adding: “It has been so badly designed it isn’t getting new power stations built but instead is just lining the pockets of the big six and investors in highly-polluting diesel generators.”

The government plan for an early capacity market auction has been criticised in the past, with business supplier Haven Power arguing that it would cost consumers around 7 per cent of their total bill.

Timetable for the capacity market auction

Source: Decc

The reform package includes measures to buy more capacity through the capacity market; to buy it earlier; to increase the penalties faced by auction winners which back out of their contracts; and to end the advantage enjoyed by diesel generation in the auction.