Comment on reforms to capacity market

“When will the Government ever learn? Despite claiming to ‘remove distortion and interventions within the market’, ministers have meddled again, introducing yet another short term policy to an already confused market,” she said.

“Instead of continuing to focus on short-term goals and targets, the government would be better placed supporting the longer term transition taking place within the energy sector.

“The capacity market system inherently favours fossil fuel generation, damaging the environment while delaying the widespread rollout of a flexible grid based on renewables, demand management, storage, interconnection and more efficient practices, as the National Infrastructure Commission and Energy UK have recently recommended.”

Dr. Jonathan Marshall, Energy Analyst at the Energy and Climate Intelligence Unit (ECIU), said that holding another round of auctions this September is likely to throw a lifeline to the highly polluting coal units that were due to shut down this year, whilst incentives for new gas-powered generation were missing.

“As a short-term measure to keep the lights on and ensure UK electricity supplies are sufficient, these reforms are good news,” he said.

“But it looks like coal plants have been thrown a lifeline. 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.

“It’s notable too that the reforms have not created incentives for building new gas-powered generation, something that the government says it wants to do but which at present isn’t happening."

The impact on energy bills of these reforms will be limited, said Marshall, especially when compared to other factors pushing bills up, such as the increased cost of capital due to lack of investor confidence caused by policy uncertainty.

“Those focusing on the cost implications of these reforms should remember that people’s bills have arguably been pushed up far more by cuts and policy U-turns emanating from the Treasury,” he said.

“As a recent select committee report found, this have made investors cautious and increased the cost of new energy infrastructure by pushing up the cost of capital.

“Policy tinkering is also undermining the UK’s energy security and compromising the government’s capacity to deliver on its targets for cutting greenhouse gas emissions.”