BEIS holds off on requiring Capacity Market units to join Balancing Mechanism

The government has decided to hold off on requiring all units in the Capacity Market to also register in the Balancing Mechanism to allow more time for remaining barriers to entry to be removed.

The Department for Business, Energy and Industrial Strategy (BEIS) said it still considers the requirement a “worthy change” but it will not be implemented in time for prequalification in 2022 as proposed in a consultation in March.

At the time, BEIS noted that whilst most large transmission-connected generators are already obliged to register as Balancing Mechanism Units, an increasing share of Capacity Market Units are connected at the distribution level and meet one of the exemption criteria. It said this can hamper the ability of National Grid Electricity System Operator (ESO) to gauge the amount of available capacity.

BEIS said responses to proposal were split. Some were outright opposed, expressing concerns over the costs of becoming a Balancing Mechanism Unit or arguing that the requirement did not fit with the purpose of the Capacity Market. A significant portion were supportive, acknowledging the benefits that increased visibility would bring, although some also thought further changes were needed to the Capacity Market or the Balancing Mechanism and the proposed timeframe should therefore be delayed.

The department said it will engage with the ESO, Elexon and Ofgem to establish a work plan to explore solutions to problems raised by respondents, which will also inform its implementation timeline. It said it will additionally carry out a full assessment of the impacts of the requirement on the Capacity Market and develop policy proposals to address issues such as the difference between aggregation rules in the Capacity Market and Balancing Mechanism and whether certain exclusions may be warranted.

BEIS has also decided to proceed with a number of other proposals from the consultation in March, including:

• Introducing new formulae for calculating the emissions of power stations burning a mix of fuels or fitted with carbon capture and storage.
• Giving the ESO greater flexibility to correct non-material errors or omissions in prequalification applications to reduce the risk of applications being rejected for administrative errors.
• Preventing certain secondary trades from being rendered ineffective when the transferor’s capacity agreement is terminated.
• Disabling the net welfare algorithm for year-ahead (T-1) auctions that are only held to fulfil the government’s commitment to procure at least 50 per cent of the capacity set aside when determining the target for the corresponding four-year-ahead (T-4) auction.
• Maintaining the current minimum capacity threshold for units at 1MW.