The UK Department for Energy and Climate Change (DECC) has released details of its capacity market design, which is to begin in 2014, to meet the UK’s energy needs.
It aims to incentivise reliable capacity from both the supply and the demand side. The National Grid will purchase the total volume of generation capacity required through a central auction, which will include all providers that offer capacity. Incentives will be offered to energy companies to invest in new capacity.
This will form part of a wider scheme to slash electricity demand by 9% by 2030. Following closures of old coal-fired power plants the country is facing an electrical energy shortage, so investing in additional reliable capacity is essential.
New and existing generation sources will be eligible to participate in the capacity market auction, as will demand side response suppliers and energy storage systems.
The amount of capacity required will be judged for each year, the DECC will set out the requirement 4.5 years ahead of the delivery based upon how much is expected to be available from other sources and how much therefore must be auctioned.
Ziko Abram, director and co-founder of KiWi Power, a demand response management firm, said in response to the news: “The transitional arrangements announced today for demand-side response demonstrates the potential for non-generation technologies to make a significant contribution to securing the UK’s energy supply. ‘Negawatts’ will play an increasingly important role in the future design of our electricity network.”
It is unclear yet whether speed of response will be compensated or if the value of capacity alone will be paid. Abram added: “We must ensure that further work regarding the detailed design of an enduring mechanism continues and that it will support demand-side response participation, while encouraging its growth within the industry. Demand-side response must be allowed to operate on a level playing field alongside other forms of capacity.”
Production capacity is in place to guard against losses in generation when there is a lot of variable renewables on the supply side.