DECC sheds light on the Capacity Market

Last week saw the publication of a raft of documents from the government on various aspects of the energy sector. This included the release by the Department of Energy and Climate Change (DECC) of its detailed design proposals for the Capacity Market together with a ‘strawman’ of the Capacity Market design.

In addition, DECC confirmed that the government will run the first Capacity Market auction in 2014 for delivery of capacity from the winter of 2018–19, subject to the Energy Bill becoming law and subject also to state aid clearance.

The Capacity Market is one of the key parts of the Electricity Market Reform proposals making their way through Parliament. The aim of the Capacity Market is to ensure that there is sufficient electricity generation capacity available at all times to meet projected levels of demand. The government recognises that the market may not make this capacity available without some form of incentive (as the generation may not be running in the most efficient baseload configuration and so the economics do not always add up). Therefore, it has proposed the introduction of a market to make payment to certain generators for being available to generate and also for generating as and when required, as well as making payment to large energy consumers to reduce their demand at times of system stress…

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