UK electricity capacity payments to start in winter 2017

The UK’s capacity remuneration mechanism will kick into force a year earlier than planned at the start of winter 2017, the Department of Energy and Climate Change (DECC) confirmed on Friday.

It follows ‘overwhelming support’ from the industry for the proposal, which was put to consultation at the start of March (see EDEM 1 March 2016). Value was traded out of the Winter ’17 in the immediate aftermath of the consultation’s launch in March, while the corresponding dirty spark spread lost 7% in one session.

Friday’s announcement will reassure the market that beleaguered plant operators, notably those running on coal, will be able to secure capacity payments from the government at the start of winter 2017.

“The government confirms it will proceed with the implementation of an early auction for delivery in 2017/18, and will immediately begin the process of making the necessary regulatory and rule changes in order to enable this,” DECC said in its response to the consultation.

The decision to bring forward the delivery of the capacity market was prompted by a spate of plant closures in recent months and concerns that more could follow.

Utility SSE has already reversed a decision to close its 2GW Fiddlers’ Ferry coal-fired power station in response to the consultation and indicated it will enter the plant into the auction for winter 2017 capacity payments. Experts have also said that SSE’s decision could set a precedent for other plants that have recently closed (see EDEM 1 April 2016).

Capacity market schedule

Energy secretary Amber Rudd also confirmed an auction for capacity payments starting from winter 2020 will take place this year. Parameters for both auctions, including the target capacity, will be revealed by July.

Two capacity market auctions have already been held by DECC, with 49.3GW of capacity procured mostly on one-year contracts from the start of winter 2018. Last December’s auction resulted in contracts being awarded to 45.3GW of thermal plant capacity for the start of winter 2019.

Changes to capacity market rules

Some proposals to ensure that successful bidders into auctions are able to deliver on their contracts will also be taken forward by the government.

This follows Carlton Power’s confirmation that it will be unable to deliver on its contract to build the new 2GW Trafford Power station in time for the start of winter 2018.

“In light of the feedback received, the government intends to proceed with its core proposals – raising termination fees, disqualifying failed units from two years of future capacity auctions, and increasing credit cover for most applicants already required to lodge credit cover,” DECC said in the consultation response.

However, the consultation did not address concerns that embedded diesel generators, which have succeeded in securing contracts at the expense of new CCGTs in the auctions to date, have unfair economic advantages.

The energy regulator Ofgem and Defra (Department for environment, food and rural affairs) are currently considering action ahead of future auctions. henry.evans@icis.com