Post: Government sets out Capacity Market parameters

Government sets out Capacity Market parameters

The government has set out the auction parameters for the upcoming T-1 and T-4 Capacity Market auctions planned for February 2024.

Published on 18 July, the letter from energy secretary Grant Shapps confirmed that for the T-4 auction for the 2027-28 delivery year the total target capacity is 44.5GW , of which 1.5GW is to be set aside for the associated T-1 auction, leaving a target capacity of 43GW to be procured through the T-4 auction itself. For the T-1 auction for 2024-25 delivery year the target capacity is 7.4GW.

Source: Department for Energy Security and Net Zero

This was accompanied by a report from the independent Panel of Technical Experts providing advice on the National Grid Electricity System Operator (ESO) Electricity Capacity Report for delivery years 2024 to 2025, and 2027 to 2028.

The panel raised concerns about potential over procurement and the consequent costs to society and suggested that a “careful re-evaluation of the supply-side of the base case and the interconnector risks be undertaken”. It also noted that geopolitical concerns for gas supplies to Europe remain considerable and that these were not taken into account in the latest Electricity Capacity Report by National Grid ESO, although it noted that the geopolitical situation may evolve in the short term and that there is not strong evidence to change the fundamental assumptions at this point.

The Capacity Market is a scheme that provides a payment for reliable sources of capacity to ensure they deliver energy when needed. It operates alongside the electricity market, so participants continue to sell electricity in the market https://www.nortonrosefulbright.com/en/knowledge/publications/7252c69b/the-capacity-market-in-great-britain-results-and-reform and is designed to encourage investment in new power stations and provide backup for more intermittent and inflexible low carbon generation sources.

The Capacity Market works by holding auctions to procure capacity for delivery in four years’ time. Participants bid to provide capacity, and successful bidders receive a payment for the capacity they provide. The scheme is designed to ensure that there is enough capacity available to meet demand during times of peak demand. The Capacity Market is open to a range of participants, including generators, demand side response providers, and interconnectors.

GridBeyond COO Mark Davis said: