Comment on Npower, capacity market auction

Commenting on energy price rises announced today by Npower, and the capacity market auction, Richard Black, director of the Energy and Climate Intelligence Unit (ECIU) said:

“It’s bizarre, frankly, to see energy suppliers such as Npower blaming the capacity market for raising bills.

“For one thing, this week’s capacity auction has seen the lowest prices ever, far lower than most onlookers expected and raising questions if it was even needed – but in any case, there’s no inherent reason why the capacity market should lead to any noticeable increase in people’s bills.

“It’s basically handing energy companies cash for doing very little, as almost all of the power stations covered by the contracts would be operating anyway – it’s a straight payment to their profits. In an efficient market you’d expect to see competition eroding that additional profit margin, effectively bringing bills down close to where they were before.

“In addition, the capacity market allows companies more flexibility in using plant than the contingency measures used in the last few winters, which should make their operations more efficient and reduce the chance of price spikes, again putting a downward pressure on bills.

“So provided the retail market works properly and regulators keep an eye out for profiteering, the capacity market will deliver the energy security we need for much less than headline figures might indicate."

The capacity market auction is expected to close today.