Capacity Market ‘doesn’t secure energy supply’

The Capacity Market (CM) is “unnecessarily” expensive for consumers and doesn’t help to secure energy supply. That’s according to the Institute for Public and Policy Research (IPPR) which said the […]

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By Jacqueline Echevarria

The Capacity Market (CM) is “unnecessarily” expensive for consumers and doesn’t help to secure energy supply.

That’s according to the Institute for Public and Policy Research (IPPR) which said the £2.8 billion subsidies to power companies is not enough to achieve the government’s energy trilemma.

The CM is an annual auction which was introduced in 2014 to guarantee energy supply.

The IPPR claims the auction is providing poor value for money for billpayers, cuts across plans to reduce carbon emissions and is too focused on large power stations at the expense of more efficient and flexible demand management technologies.

The IPPR adds although the government claims its policies are designed to encourage a reduction in fossil fuels the CM awarded £373 million of support to coal and £176 million to diesel last year.

Furthermore, despite the report welcoming the government’s decision to close coal-fired power plants by 2025 it stated the CM is not providing the new gas-fired capacity needed to replace them.

In order to secure power supply, the IPPR suggests to splitting the scheme in two separate auctions for old and new generation capacity and introducing an emissions performance standard that excludes the most polluting plants from the scheme.

Byron Orme, IPPR Research Fellow and author of the report said: “The government rightly wants to secure the country’s power supply but its primary mechanism for doing so is failing to meet any of the government’s own objectives. It is absurd that consumers are paying for subsidies to the most polluting forms of generation such as diesel and coal while in a separate policy also paying to discourage them.

“It is very wasteful to be subsidising nuclear power stations to stay open in four years’ time when they would almost certainly do so anyway. New technologies to manage demand at peak times offer the potential to reduce costs to billpayers but cannot properly compete due to the bias in the scheme towards large power stations. The Capacity Market needs fundamental reform if the lights are to be kept on at reasonable cost to households and businesses.”

The government insists the CM is the principal existing security of supply tool, driving down costs and securing energy at the lowest possible price for billpayers.

A DECC spokesperson said: “We are clear that providing a secure supply of affordable energy for our families and businesses is non-negotiable. That is why we recently announced reforms to the Capacity Market so we buy more and buy earlier – helping us bring forward new capacity so we create an infrastructure fit for the 21st century.”