According to the Institute of Public Policy Research (IPPR) the government’s main scheme for ensuring stable electricity provision when the UK’s electricity grid is under pressure (the capacity market scheme), is failing despite having awarded £2.8billion in subsidies.
What is the capacity market?
The capacity market is an annual auction which was introduced in 2014 with the aim to guarantee energy supply. However, the IPPR is concerned about its value for money, if the scheme works against emission reduction planning. There are also issues around favouring larger power generators rather than more flexible and efficient smaller operators.
The IPPR adds, although the government claims its policies are designed to encourage a reduction in fossil fuels, the capacity market awarded £373m of support to coal and £176m to diesel last year. Furthermore, despite the report welcoming the government’s decision to close coal-fired power plants by 2025 it stated the capacity market is not providing the new gas-fired capacity needed to replace them.
4 key recommendations for reforming
In order to secure power supply, the IPPR has made four key recommendations for reforming the scheme:
- The capacity market should be split into separate auctions for old and new capacity;
- An emissions performance standard should be applied to all capacity in receipt of capacity payments;
- New large-scale gas power plants should commit to using carbon capture and storage (CCS) if they are to stay open in the long term; and
- Demand response providers should have access to longer contracts.
The government insists the capacity market is the principal existing security of supply tool, driving down costs and securing energy at the lowest possible price for bill payers.