Capacity Market providing ‘free money’

Alan Whitehead has slammed the Capacity Market for furnishing suppliers with “free money” to provide power they would have anyway.

Earlier this week the House of Commons approved tweaks to the Capacity Market, which is designed to ensure security of supply through upfront payments for reliable sources of electricity.

However, during the debate, Labour’s shadow energy minister complained of “perverse outcomes” in market provision since its introduction in 2014.

He said: “The Capacity Market at the moment is mainly an arrangement to provide free money for a number of providers who probably would provide anyway. They get money for being around to guarantee that they will provide.”

As an example, Whitehead pointed to the inclusion of nuclear power in the capacity market auction process when switching off a nuclear power station is “very difficult”.

He said the problem of price spikes resulting from tight capacity, which the mechanism had been set up to mitigate, has largely disappeared and will be “even less of an issue” in the future due to progress on provision of capacity and interconnectors.

Whitehead pressed the government to explore these concerns and whether a strategic reserve should be established to provide an alternative, when it conducts its upcoming five-yearly review of the capacity market.

But the rule changes up for consideration by MPs were “non-controversial” he said.

“It makes a number of sensible revisions to how the Capacity Market works, particularly in respect of those aggrieved would-be Capacity Market entrants who have been excluded from participating, often not for terribly sensible reasons—it will ease that problem considerably.”

Energy minister Anne-Marie Trevelyan said the new regulations make technical improvements to address issues in the Capacity Market.

These include the removal of legislative barriers against capacity providers, which have had their agreements terminated last year, transferring their obligations to other providers through the secondary market.

Trevelyan said the removal of these legislative barriers would improve the flexibility of the Capacity Market’s secondary trading regime, making it easier to replace capacity that closes prematurely and at short notice.