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The capacity market needs a “redesign” to open it up to demand-side response (DSR) and storage, the Energy and Climate Change Committee has argued in its final report.
MPs have urged the government to get rid of “outdated” rules which are discouraging disruptive technologies from taking part.
“The government must get a move on and encourage the energy market to embrace smart technological solutions like energy storage and demand side response”, said committee chair Angus MacNeil. “There is an incredible opportunity for the UK to become a world leader in these disruptive technologies. Yet our current energy security subsidies favour dirty diesel generation over smart new clean tech solutions.”
The report said the length of the contracts offered to DSR providers should be re-examined. Whilst new build generation capacity can bid for contracts up to 15 years in length, DSR developers can secure just one-year contracts. “Our view is that significantly longer contract periods should be available to DSR providers,” the committee added.
The requirement for DSR developers to put down a deposit before bidding into the auction should be removed, and if not, the required deposit should at least be reduced so it makes up a “more reasonable percentage of the cost of the projects that are bidding”.
Furthermore, the government should address the rules currently preventing storage providers from stacking other revenues on top of capacity market payments. It should look into the use of a merit order to give priority to DSR over diesel generators when the margin between bids is tight.
The committee reiterated calls for the government “to move quickly” on addressing regulatory barriers faced by storage providers outside of the capacity market: “There must be a clear definition for storage, double-charging must come to an end, and a separate asset class for grid-level electricity storage should be established as a matter of urgency.”
It said the government should consider introducing a subsidy framework specifically for storage “given the importance of storage to unlocking the full potential of renewable energy”.
“Energy storage is a vital keystone in building a clean electricity system,” said MacNeil. “It will mean we won’t have to wait for the sun to shine or the wind to blow to get our energy from renewables. We can generate electricity, store it and turn it on when it’s needed.
“If current regulatory barriers to storage were removed, some £7bn per annum of savings to consumers could be achieved.”
The committee heard last week that “biased” capacity market rules, which favour new generation capacity, have left DSR and storage without a route to market. The report was the last to be published before the committee was disbanded yesterday. Its responsibilities have been taken on by the Business, Energy and Industrial Strategy Committee.
National Grid recently published the register for the upcoming four-year ahead (T-4) capacity market auction. It showed more than 2GW of both DSR and batteries have prequalified to take part.
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