Capacity market will lead to higher energy bills

Professor Mitchell warned that the design of the capacity market risks keep coal-fired power stations open at a time when the declared policy of all three main parties is to end the use of coal, the most polluting fossil fuel.

Professor Mitchell said: “The capacity market is designed around the out-dated and over-simplistic notion of 100 percent renewables back-up: that every 1 gigawatt of wind power capacity needs 1 gigawatt of coal or gas-fired capacity on standby.

“This is demonstrably untrue; but the myth persists, and the Government has bought it, despite advice from legions of experts and counter-examples from countries like the US.

The capacity market was conceived as a way of ‘keeping the lights on’ at a time of increasing renewable generation, and when old coal, gas and nuclear stations were set to close. It will pay companies to keep existing nuclear, coal and gas-fired power stations open whether or not they are generating electricity and, potentially, to build new gas-fired units.

Professor Mitchell said that a far more sensible way to solve the energy ‘trilemma’ of providing clean, low-cost and secure energy supplies lies in a modern, flexible, smart grid that prioritises interconnectors and demand-side measures – customers being flexible with their energy usage - as much as the supply side.

Professor Mitchell said: “The costs and carbon emissions from using demand-side measures are substantially lower than those associated with running extra fossil-fuel power stations.

“It is cheaper, easy and greener to use demand-side measures. There is simply no logic to the Government prioritising expensive, dirty generation capacity instead which will lead to higher bill for consumers and increased carbon emissions.”

ENDS

During the US ‘polar vortex’ in January, 20 percent of generating stations feeding the grid of PJM, the largest grid company in the north-eastern US, were out of action at a time of record demand. Yet the lights did not go out, as PJM implemented demand-side contracts agreed with industrial and domestic consumers and took advantage of interconnections to neighbouring grids.

The government has set only about 1.5 percent of the capacity market aside for demand-side providers. This is despite evidence from the US showing that it regularly meets 10-12 percent of peak demand, and a recent study by Sustainability First putting the UK potential at about 30 percent.

NERA Consulting estimate that including demand-side management in the capacity market to its maximum potential would save UK customers £359m in the first year alone.

Tim Yeo, chair of the Energy and Climate Change Select Committee said recently, in a letter to Matthew Hancock (September 2014) that if ‘design faults’ in the capacity market are not rectified, “the system could encourage the construction of expensive new power stations which are not actually required. The result of this will be to lock-in unnecessary high-carbon generation capacity instead of innovative demand-side solutions, leading to higher bills for electricity consumers and increased greenhouse gas emissions.”