The next round of capacity auctions will take place one year early, energy and climate secretary Amber Rudd has confirmed.
The decision comes after a consultation in March in which the government expressed concerns over energy security due to the early closure of several coal-fired power stations. The next auction will now take place from 1 September for delivery in 2017/18, according to a letter from Rudd to the National Grid.
This will take place alongside an auction for demand side response, under which businesses can earn income through lowering energy use at times of high national demand. There will also be an auction for capacity to be delivered in 2020/21, the letter states.
Two auctions have so far been held under the capacity market. The first took place in December 2014 and the second in December 2015. Contracts were awarded for 44.5GW of existing plant, mainly gas, coal and nuclear, and only 2GW for new build in the second auction. New plants awarded contracts in the two auctions will not deliver energy until 2018/19 and 2019/20.
The exact amount of capacity to be procured through the auction will be confirmed in June, but Decc said it was likely to target at least 3GW more than under previous plans. The department also confirmed in its consultation response that it would strengthen sanctions on companies that do not fulfil their contracts.
The outcome of the second auction was heavily criticised for awarding more than £175m in subsidies to diesel backup generators. The environment department (Defra) is due to consult later this year on action to limit the impact on local air quality from diesel engines and has held workshops with industry and regulators to explore options ahead of this.
Decc’s consultation revealed some of Defra’s proposals, which include setting binding emission limit values on air pollutants from diesel engines.
Some respondents to Decc’s consultation expressed concerns that this would not do enough to reduce air pollution from diesel generators. They said controls should be integrated in the capacity market.
But Decc’s response states: ‘The government believes the steps being taken by Defra sends a clear signal regarding the longterm viability of investing in generation that may be leading to localised pollution. In relation to the call for controls on diesel to be established within the capacity market itself, the government notes the importance of maintaining the principle of technology neutrality,’ Decc said in its response.
Labour's shadow energy and climate secretary Lisa Nandy called the capacity market ‘a massive waste of money’.
‘It has been so badly designed it isn't getting new power stations built but instead is just lining the pockets of the Big Six [energy companies] and investors in highly-polluting diesel generators,’ she said.
Dr Jonathan Marshall, energy analyst at the Energy and Climate Intelligence Unit, said that the announcement equated to a lifeline for coal plants. ‘Eggborough, responsible for the emission of 11.5 million tonnes of CO2 in 2013, was supposed to have shut down, but signalled its intent to bid for capacity market contracts at the last minute. These reforms are likely to prompt other old, polluting coal power stations to do the same.’
