Post: Government seeks views on Capacity Market modernisation

Government seeks views on Capacity Market modernisation

The government has launched two consultations on changes to the Capacity Market (CM) rules to improve for how consumer-led flexibility is categorised and operates within the CM and to better enable participation and delivery assurance of consumer-led flexibility.

The first call for evidence builds on the October 2023 Capacity Market Phase 2 Call for Evidence and engagement that followed. Views are being sought on a range of topics relating to consumer-led flexibility, delivered via demand side response (DSR) in the Capacity Market, including:

• Generating Technology Classes (GTC) for DSR technologies. The government is seeking early views on establishing the following DSR Generating Technology Classes (GTCs): Behind-the-Meter (BTM) Storage; Behind-the-Meter (BTM) Generation; Genuine Demand Response (inc. turn-down). The government is also seeking views on whether an additional GTC is required for Electric Vehicle (EV) charging and Vehicle-to-Grid (V2G) 22 bidirectional charging technologies, should these be introduced to the CM, or whether these can be incorporated into the categories listed above
• new de-rating factors for those technologies
• management of aggregated DSR portfolios
• improving Baselining Methodologies
• introducing completion milestones for new DSR entering the CM. The government said that the introduction of a completion milestone for DSR CMUs, which would occur before the relevant T-1 Electricity Capacity Report. This would allow any lost capacity from DSR CMUs, which fail to meet a completion milestone, to be replaced ahead of the Delivery Year. Failure to meet a completion milestone could be met with a loss of credit cover which would reduce the risk of non-delivery, but also reduces the risk of a termination fee being paid by the Capacity Provider

The government simultaneously published a consultation on proposals to modernise CM Rules and improve participation and delivery assurance of consumer-led flexibility. Views are sought on:

• a series of improvements to the clarity of the CM Rules. Government is proposing to do this by removing ambiguities and out of date Rules
• a change to the rules to clarify that existing units can alter an initial Opt-out Notification if their operational circumstances change
• an extension to enable mothball plants to apply for 2025 prequalification for auctions held in 2026
• proposals to address administrative burdens for CM participants and CM Delivery Bodies with respect to aggregated DSR portfolios, and bolstering delivery assurance
• the introduction of a termination fee for failure to demonstrate agreed DSR capacity ahead of Delivery Years

The government has also published the 10-year review of the CM. This second statutory five-year review (2019-2024) of the CM, referred to as ‘the 10-year review’, takes a backward-looking approach to analysing the performance of the CM against its original objectives. The review found that the CM has been effective in meeting its objectives.

The calls for evidence will be open until 17 February 2023, and the government aims to respond in spring 2025. The government aims to implement its proposed changes before prequalification in 2025.

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