The government plans for electricity market reform (EMR) in the UK are going full steam ahead and there is a growing clarity over the form it will take. Contracts for difference are set to phase out and replace current legislation like the Renewable Obligation, forming a new support mechanism for nuclear and renewables. The other major policy device is the introduction of a capacity market to ensure we plan a safe margin of back up generation to meet peak demand, given the looming cliff of generation from fossil fuel plants expected to close in the middle of this decade.
The problem with the legislation in its current form is that it does not consider system operator needs. National Grid, who have the responsibility for day to day balancing of the network, have little say over what kind of plant gets built to provide capacity in the proposals. If, for example, we were to reinstate coal plant that provides 500MW of capacity but takes 10 hours to turn on, it is of very little value to the system operator for short term balancing to the system. There is a danger that the capacity we provide is of the wrong sort for efficient system operation.
This may never turn out to be an issue given that the current plans are to auction capacity with a 4-year lead in time and at the lowest bid. Such an arrangement weights itself heavily in favour of building combined cycle gas turbine generation, or for refurbishing mothballed plant (CCGTs are the most cost effective and quick type of generation to build at the moment). It is worth bearing in mind though the decoupling of the capacity market and real time balancing may cause some problems. The solution, if it does to turn out to be an issue, may be something that re-couples capacity requirements to flexibility requirements: a capability market.
By Marek Kubik.
You can read more about energy issues on Marek’s blog.