Capacity Market: CO2 limits introduced for back-up power supply contracts

The government has set out plans to take carbon emissions into account when securing back-up power supply for the UK's electricity grid, in a long-awaited move it is hoped will make it easier for green grid technologies such as battery storage projects and demand side response (DSR) services to compete for contracts.

The change forms part of a suite of reforms announced yesterday for the Capacity Market, the UK's auction system for ensuring security of power supply during periods of peak demand on the grid.

The Capacity Market has previously faced criticism over concerns it favoured more well established, often high carbon, back-up power technologies - such as diesel generators - which detractors argued undermined the UK's climate ambitions. Complaints the scheme was biased against emerging technologies even led to legal action and a EU State Aid probe, which saw the auction scheme temporarily suspended until a Brussels' ruling late last year cleared the way for its recommencement.

However, the government has now acted to address concerns about the scheme's environmental impact and from October 2024 CO2 emissions limits will now apply to power capacity which came online in the UK before July 2019. The rules will be backed by a new reporting and  verification mechanism for introduction of these emissions limits as part of the Capacity Markey scheme, the Department for Business, Energy and Industrial Strategy (BEIS) said.

Dr Nina Skorupska, chief executive of renewable energy and green tech trade body the REA, welcomed the announcement, which she said "should help push out some of the highest carbon emitting plants and redirect funds to cleaner means of ensuring the security of supply".

"A common barrier to advancing the UK's energy storage sector is that our electricity grids and major energy policies from government are set up for an age of large-scale, centralised fossil power stations," she explained. "As clean energy technologies plunge in cost, and the climate crisis becomes ever-more urgent, it is crucial that the Capacity Market is designed in line with our decabonisation goals.

"The changes to the Capacity Market today will help make it easier for cutting-edge clean technologies to compete."

The Capacity Market was suspended in November 2018 following a legal challenge from clean technology firm Tempus Energy, which had argued the scheme unfairly favoured fossil fuel generators over newer, cleaner technologies such as DSR and battery storage. An investigation was subsequently launched by the EU Commission, which recommended several changes to the scheme when it eventually gave the go-ahead for it to begin operating again October last year.

In response, plans to reform the Capacity Market were initially set out by BEIS in a consultation earlier this year, and few changes have been made to those initial proposals in yesterday's announcement confirming the reforms will proceed.

As well as introducing new CO2 limits, the government confirmed it would reduce the minimum capacity threshold for securing Capacity Market contracts from 2MW to 1MW, and carry out a formal annual review of new capacity technologies not currently competing in the market "but which could effectively contribute to security of supply".

DSR technologies will also be allowed to apply to prequalify to bid for all the contract lengths available under the Capacity Market - which run to maximum of 15 years - if they meet relevant capital expenditure thresholds, BEIS said.

"The proposed changes are intended to ensure existing capacity or DSR components that do not comply with the limits (such as coal, diesel, and possibly some inefficient gas generation) cannot receive capacity payments from the date of 1 July 2025," it said.

With the measures set out yesterday, BEIS explained it was effectively moving to implement five of the EU Commission's six recommended reforms, and that it would be investigating and consulting on proposals to implement the final recommendation on minimising fraud and error in the market "in due course".

Separately, the government yesterday confirmed it would go-ahead with plans trailed last month to relax obligations and deadlines for electricity generators holding Capacity Market contracts in the wake of disruption caused by the coronavirus crisis.

Vijay Shinde, chair of the REA's Energy Storage and Large Scale Power Forums and chief technology officer at Harmony Energy, said the regulatory changes outlined yesterday confirmed the UK energy storage industry was now heading "in the right direction".

"The outcome is encouraging to the energy storage industry, the changes will help progress a number of projects which in turn will assist in unlocking the vast potential of renewable power in the UK," he said.

It comes off the back of Ofgem's approval last week of changes that would end the 'double charging' of grid power storage in March next year, delivering on another key policy ask for smart grid advocates.

"The current grid charging arrangements, which are distortive and leading to network costs being disproportionately recovered from electricity storage facilities, will thankfully end March 2021," said Shinde.

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• Topics
• Infrastructure
• demand side response
• Capacity Market
• REA
• BEIS
• Battery Storage