Final details of how power plants including new and existing gas ones will be paid to have power on standby were brought out by DECC yesterday.
Called the “capacity market”, it will operate alongside the existing electricity market and agreements between government and plant owners will be decided four years ahead of the year capacity must be delivered.
Power plants will bid in auctions to be the back-up power for intermittent energy sources like wind.
The first auction will take place in December 2014 – as long as state aid clearance is given by the EU.
Capacity auctions will be capped at £75/kW which the Government said should “protect consumers from excessive costs”.
To counter claims investors had no guarantee they would earn enough to make up for spending on new gas plants, yesterday DECC confirmed 15 year agreements will be available to new plants.
The department said it expects this will include a range of new independent providers.
As for existing plants, they will be able to get rolling one year agreements. Three year deals are also on the table if existing plants need significant refurbishment.
Steep penalties for “unreliable” capacity will be capped at 200% of a provider’s monthly income and 100% of their annual income said DECC.