One of the UK Government’s scheme to keep the nation’s lights on favours fossil fuels rather than innovative smart technology, MPs say.
The Energy and Climate Change Committee said the design of the Capacity Market has been “skewed” and could result in “higher than necessary” energy costs and carbon emissions.
Under the scheme, which will run for 10 years, operators bid for contracts in annual auctions to offer back-up power at times of peak demand. It provides payments for power plants that would otherwise be closed or mothballed to stay online.
The Commitee believes the majority of the payments, which comes from consumer bills, are going towards keeping existing fossil fuel power stations which stand idle for much of the year while smarter schemes such as demand-side technology are not given a “level playing field”.
More than a fifth of contracts awarded in the auction last year were for highly polluting coal power stations, according to the report. Demand side response (DSR) projects, which can provide back-up capacity while also cutting greenhouse gas emissions, were awarded less than 0.4% of contracts.
Chair of the Committee Tim Yeo MP said: “Every consumer in the country is currently subsidising spare electricity generating capacity that may only be used for a few hours each year. But smart technology has now made it possible to reduce unnecessary electricity demand at peak times, thereby reducing the number of polluting power stations that need to be switched on.
“This could mean we can reduce the total electricity generating capacity that has to be maintained in future, bringing down costs for consumers while enabling us to reduce consumption of fossil fuels.”
DSR providers were only allowed to bid for one-year contracts rather than contracts of up to 15 years for new generation.
The report suggests the government should consider increasing the contract length of DSR projects and DECC should public a detailed strategy on helping the technology reach its full potential.
The MPs also raised concerns about National Grid’s “potential conflict of interest” in its role overseeing the Capacity Market as the main Delivery Body for the Government’s Electricity Market Reforms (EMR).
“Given its existing role as the System Operator and owner of the transmission network it has a commercial incentive to procure additional capacity when it recommends how much capacity the Secretary of State should procure. This conflict of interest must be urgently resolved,” the report stated.
A DECC spokesperson said: “The Capacity Market auction has guaranteed energy security at the lowest cost for consumers and we’ve done this by ensuring we get the best out of our existing power stations, unlocking new investment in flexible plant and putting in place plans to enable the demand side to play a growing role in the market.”