Proposed changes to the capacity markets

DECC Consultation on proposed changes to the Capacity Market (CM).

Electricity market conditions have changed with a tightening of capacity due to the announcement of generation plant closures taking effect earlier than anticipated. As such the Department of Energy & Climate Change (DECC) has been reviewing the Capacity to Market (CM) mechanism to ensure a cost effective energy supply.
To counteract the supply risk, the DECC has taken a number of steps and is proposing key reforms. Initial impact analysis shows that the steps taken should provide a “net saving” when compared to a “do-nothing” scenario.

According the DECC’s consultation published March 2016:

"The DECC has brought forward, by one year, the delivery of CM to 2017/18 and, accordingly, early capacity auction will be held January 2017 and a second auction in March 2017."

Additional proposed changes:

  • to buy greater capacity earlier – the third CM “T-4” auction (for 2020/21 delivery) will be held December 2016;
  • to support the initial policy intent to grow the Demand Side Response (DSR) sector by helping new DSR to participate in future CM auctions;
  • to re-balance reward and penalties with delivery incentives for those who have agreements to deliver against them and greater penalties for those who renege – such as higher levels of credit cover for new builds, higher termination fees and inability to participate in CM for 2 years.

Furthermore, new legislation covering diesel engines is proposed and an Ofgem review of embedded benefits is also noted, with potential changes to the charging regime to be published in the summer.

How this may affect your business?

Given the DECC’s concerns, it is likely that the proposed changes will be confirmed and while the reforms may lead to an improved security of supply they will also come at cost to consumers. Business consumers should continue to manage their electricity consumption to minimise load during peak demand.

You can view the original article at:

> DECC Capacity Market Consultation document

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