Capacity Market reform promises emergency auction for 2017/18, plus action on dirty diesels and non-delivery

An emergency Capacity Market auction will be held in January for delivery in winter 2017/18, the Department of Energy and Climate Change (Decc) said in a consultation on changes to the CM intended to improve security of supply and bring forward new large gas plant.

Although Decc said the first two auctions, “secured capacity at very low prices for consumers”, but that claim was quickly followed by an admission that, “The volume of capacity procured needs to rise and the clearing price needs to increase as a result … for the market to bring forward new gas capacity” .

“We need to buy more capacity, and buy it earlier, “ Decc said.

An auction this winter will “provide assurance” for the winter of 2017/18 and allow National Grid to close its Supplemental Balancing Reserve and Demand Side Balancing Reserve measures – both had resulted in far higher prices than the CM auction. The measures have “safeguarded our energy security, it increasingly risks doing so at the cost of distorting investment and plant closure decisions,” Decc said.

Decc also admitted it had to increase penalties for non-delivery, and said that in future auctions, “We would expect this as a minimum to lead to an increase in the target volume of around 1GW”.

Penalties will include a ban on failed projects from participating in future auctions, increased monitoring and reporting milestones, and potential increases in credit cover for projects who cannot demonstrate sufficient progress by the 11-month stage.

Decc also said it would also shift capacity from year-ahead to four-year ahead auctions in future.


Dealing with diesel

The Department also promised action on ‘car park’ diesel plants that have won CM contracts. It promised Defra would  consult later this year legislation that would set pollution limits on diesel engines, “with a view to having legislation in force no later than January 2019, and possibly sooner”. The limits would apply to engines between 1MW and 50MW.

Regulator Ofgem is also re-examining network charging rules to se whether  car-park diesel plants are being ‘over-rewarded’ for the embedded benefits they offer to system.

Stakeholders have just one month to respond to the consultation – it closes on 1 April.

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