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The government is consulting on proposals to widen the scope for inclusion in the Capacity Market.
The department for business, energy and industrial strategy (BEIS) is holding a month-long consultation on future improvements to the scheme, following the reinstatement of state aid approval by the European Commission in October.
The consultation comes as the latest Capacity Market auction cleared at £6.44 per kilowatt per year. In total, 45GW of de-rated capacity was procured, with owners of 59GW of capacity taking part in the auction. Eighty two per cent of the awarded capacity went to existing generation.
Among those securing agreements in the T-3 auction for delivery starting in 2022/23 was EDF, which was successful in bids for 12 nuclear units (5.9GW), three combined cycle gas turbine (CCGT) units (1.3GW) and two battery storage units. However, Hinkley Point B, its West Burton A coal-fired unit and 47MW of demand-side response (DSR) were unsuccessful. In the case of Hinkley, EDF said the clearing price did not provide sufficient reward to take on the risk of penalties arising from non-delivery.
Drax secured a total of 2.6GW of capacity from its existing gas, pumped storage and hydro assets. However, it has confirmed that it will not take a Capacity Market agreement in the T-4 auction, which will be held next month, for the CCGTs at Drax Power Station. This follows a legal challenge against the government’s approval of the project.
The consultation on future improvements to the Capacity Market seeks opinions on five proposals.
The first is to allow DSR projects to access multi-year agreements if they are able to meet the relevant capex threshold. Currently DSR is not deemed to have the higher capital cost requirements that would make it necessary to access three or fifteen-year agreements. In the consultation document, BEIS says this situation is changing.
The consultation also puts forward the suggestion of reducing the minimum capacity threshold to participate in the market from 2MW to 1MW. BEIS says this would ensure alignment with other markets and would allow operators to stack revenues from other markets with Capacity Market revenues.
It also proposes enshrining in legislation the commitment to procure at least 50 per cent of the capacity set aside for the T-1 auction, as well as designing methodology to determine the minimum capacity to be set aside. As this was included in the State Aid decision when the market was launched it has always been adhered to, but this move would set it within the legislation that implements the Capacity Market.
The government also wants to allow any new capacity type which can effectively contribute to addressing the generation adequacy problem to be incorporated into the market. Again, this is putting existing progress into legislation.
Finally, BEIS wants to establish a reporting and verification mechanism for carbon emission limits to be applied to the Capacity Market.
A sixth commitment – on the direct participation of cross-border capacity – will be subject to a call for evidence, which will be published separately.
The consultation is open until Monday 2 March.
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