UK government proposes low-carbon reforms to capacity market

The UK government is consulting on proposed reforms to the electricity generation capacity market in Great Britain, with an emphasis on incentives for low-carbon technologies and "robust" energy supply.

The proposed reform is to ensure the capacity market keeps pace with the transition to a decarbonized electricity network by 2035, the UK's Department for Business, Energy and Industrial Strategy said in a statement Jan. 9.

"Since its introduction in 2014, the landscape in which the Capacity Market operates has shifted, with renewable energy now making up a significant proportion of our electricity generation system," BEIS said.

Four-year auction prices rose to GBP30.59/kW/year in 2022, up from GBP19.40/kW/year in 2014, data from the Electricity Market Reform Delivery Body showed.

The reform would "support the delivery of a decarbonized power system by 2035, without compromising security of supply," BEIS said, noting that electricity from clean energy sources was often cheaper than fossil fuel generation.

Platts, part of S&P Global Commodity Insights, assessed the GB offshore wind capture price at GBP84.64/MWh Jan. 9, versus GBP155.00/MWh for conventional baseload day-ahead power.

The government will consult on new contracts for low-carbon technologies to drive their participation on Capacity Market auctions, requirements for oil and gas generators to reduce emissions from 2034 and strengthening the scheme's ability to ensure security of supply when the power system is stressed, BEIS said.

The Capacity Market uses competitive auctions to ensure there is sufficient reliable power generation capacity to meet peak electricity demand in Great Britain.

Reduced oil and gas generator emissions could come from implementing carbon capture technology, using hydrogen to decarbonize and reducing running hours, it said.

It expects such technology to come online over the coming decade, BEIS said.

The government proposes to offer multi-year contracts for low-carbon capacity such as smart demand-side response technologies and smaller-scale electricity storage to drive greener, flexible technologies to compete in auctions.

It has also suggested a new lower emissions limit in the Capacity Market for new build plants from Oct. 1, 2034, meaning all new oil and gas plants receiving long-term agreements under the Capacity Market must lower emissions.

Under the proposal, the Capacity Market's approach to performance testing is also to be reformed to give confidence as early as possible in the winter that capacity is available. The government would also strengthen the non-delivery penalty, it said.

The proposed reforms form part of the government's efforts to reduce the country's exposure to volatile global gas prices as part of its Review of Electricity Market Arrangements, it said.

"It's vital that we decarbonize our electricity system completely by 2035, so this consultation represents an important step forward in that process," industry body RenewableUK CEO Dan McGrail said in the statement. "We need to incentivize more investment in new low-carbon flexibility in our modern energy system based on renewable technologies including wind, solar, tidal stream and green hydrogen."

UK T-4 auction clearing prices

Source: EMR Delivery Body