Date: July 13, 2018
Author: Zohreh Mohammadi

New Capacity Market Regulations: Secretary of State Instructs the Delivery Body to Run a Capacity Market Auction for 2019 Delivery

Sustainability is key to the future of Earth.

It estimated that if we keep going at the current rate, we will need a new planet by the year 2030. Departments from all industries are working towards creating options that are better for the planet, and that includes low carbon energy supplies. Now, the government has acknowledged how crucial this is, instructing the Delivery Body to run a Capacity Market auction for 2019 delivery. But what is the auction, and what does this mean?

The Capacity Market is the part of the Government’s “Electricity Market Reform.” Since 2014, it has held auctions where any capacity supplier can tender for capacity. Bidders can withdraw capacity as the prices drop, subject to terms and conditions. For the providers, this gives them a stream of steady, predictable revenue. In exchange, they must be able to provide energy in the event of system stress or failure, or be subject to penalties. The more environmentally-friendly organisations who apply (e.g. not fossil fuels), the greater the chance the nation will be relying on green power. Rather than the main energy providers consistently being the primary source of energy, the auction creates an opportunity for businesses who might not be the ‘major players’ to apply.

The Government wants more sustainable options for energy, but it also understands the need for these options to be low-cost, so the consumer can afford them. People won’t make the switch towards green energy if the cost will be detrimental to them. The Secretary of State and the Government are aiming to incentivise investment towards greener options, driving the cost down and helping the planet. Running the auction is a way of doing this. Any energy-producing business can apply to become a distributor of energy to the UK population, and participants can apply from 23rdJuly 2018.

National Grid, the British multinational electricity and gas utility company, announced recently that the next auction will be streamlined, encouraging more companies to apply and making the entire process smoother. The process for qualifying includes registration, prequalification, pre-auction submission, pre-auction submission, followed by the actual auction. The Capacity Market has its own set of regulations – known as “the Rules” – that any supplier must follow. The Rules are subject to change, and include everything from filling out the correct paperwork to ensuring that they are compliant in their behaviour.

The latest regulations also encourage the use of green/environmentally-friendly power sources. This is to encourage a gradual move towards using less fossil fuels. The rules were proposed by different energy suppliers, and Ofgem (the government regulator for the electricity and downstream natural gas market)

Amongst others, the new Capacity Market regulations include:

–       A planned expansion of the eligibility criteria for secondary trading of capacity agreements, to include units which didn’t prequalify for the auction but met the requirements later, as well as access to registration for recently commissioned, non-contracted, existing capacity market units

–       Auction eligibility for existing generation to increase liquidity in T-1 auctions and therefore lower costs for consumers.

–       There is also the potential for DSR capacity market units to be separated into different technology classes

–       An overall encouragement of the aforementioned use of renewable energy.

With new regulations come great changes, and the landscape of the Capacity Market is likely to alter significantly over the coming years. At KiWi Power, we believe a shift towards smart energy is the way forward. If you would like to find out more about our values and beliefs, our products and solutions, and how we can help you, click here.