The government is proposing a number of changes to the Capacity Market (CM) auction scheme to address concerns that current rules may favour small embedded diesel generators.
The Department for Business, Energy and Industrial Strategy (BEIS) has launched a consultation on some technical changes to the CM, which pays generators who can guarantee backup capacity during the winter period when demand is high.
While the auction is designed to “promote fair competition in order to discover the lowest sustainable price” to ensure security of supply, concerns have been raised about the scheme unfairly favouring small embedded diesel generators.
Critics argue they are highly polluting and the UK should be supporting energy sources that help towards the nation’s low carbon transition.
One of the proposed changes is to calculate the supplier charge – the method by which CM costs are recouped from suppliers – on the basis of gross rather than net demand. That’s to ensure suppliers get charged according to their total share of electricity use irrespective of its source.
The basic principle is those who use more electricity should pay more of the costs, which is measured by the demand they place on the transmission grid.
However suppliers can contract to obtain some power from ‘embedded’ generators, i.e. smaller ones connected to the lower voltage distribution network, rather than larger generators connected to the transmission grid.
By meeting some of their electricity needs this way, suppliers reduce the demand they place on the transmission grid and therefore pay a reduced share of the supplier charge costs of the CM, leading to someone else having to pay more.
BEIS said: “Many stakeholders have suggested that the current arrangements may favour small embedded generation, including diesel. The proposed change would remove a possible advantage, potentially affecting the bids of such embedded generators in the forthcoming auction(s).”
It is also seeking views on a number of other changes, including amending deadlines relating to metering tests, adjusting certain delivery milestones for the T1 auction, ensuring figures for de-rated capacity for demand side response are used consistently across the CM framework and applying termination fees where a Capacity Market Unit no longer complies with the general eligibility criteria.
The government has confirmed it aims to secure:
- 53.6GW in the early auction for delivery in 2017/18
- 300MW of turn-down DSR in the transitional arrangements auction for delivery in 2017/18
- 51.7GW in the T-4 auction for delivery in 2020/21 (with an additional 600MW in the associated T-1 auction)
The consultation closes on 23rd December 2016.