The UK capacity market has cost consumers billions of dollars since it was launched four years ago, but such subsidies – by our lights – may no longer be needed. The market mechanism in question rewards power producers simply to be available to supply electricity. Bidders are paid regardless of whether they ever generate any electricity. It allows utilities and other generators to commit to keeping coal, gas, nuclear and hydropower plants open for contract terms of either one or four years into the future. Critics of the arrangement have noted that it rewards companies to keep their plants open even if they had intended all along to do just that anyway. While gargantuan sums have been paid out in capacity subsidies to existing generators, no new large power plants have been built – as was implied would happen. Further, prices declined in the latest capacity auctions, called T-1 and T-4 for contracts going one year and four years into the future (see the chart below), an indication that adequate power supplies aren’t really an issue. countries with far higher levels of so-called variable renewables are doing without capacity markets, finding other measures (investing in transmission capacity, reforming power markets and requiring renewable energy technologies to play a bigger role in meeting power demand) to be sufficient. Perhaps it is time for the UK to follow some of the examples occurring in these markets.
Renew Economy 26th Feb 2018 read more »