Capacity Market: Rule changes for upcoming auctions

The latest round of Capacity Market auctions is underway following the publication of the auction parameters on 18 July, with the prequalification window subsequently opening on 26 July. In this blog, we explore some of the changes made to the rules and regulations of the scheme ahead of this year’s auctions.

Earlier this year, the government opened a consultation, Capacity Market 2023: strengthening security of supply and alignment with net zero, proposing short-term changes to predominantly increase delivery assurances and supply security, with longer-term changes more geared towards aligning the Capacity Market with net zero targets.

The proposals were split into two phases. Those in phase 1 intended to be implemented in time for the upcoming round of auctions, with those in phase 2 requiring further development and analysis before making a final decision on implementation.

The consultation ran between January and March 2023, with the government publishing its response to feedback in June 2023. Subsequently, in July 2023 amendments to the Capacity Market Rules and the Electricity Capacity Regulations were published to formalise the phase 1 changes. These changes included:

  • Removal of barriers to participation for mothballed plant
  • Connection Capacity reforms
  • Non-delivery penalty timeline
  • Fossil Fuel Emissions Declaration verification

We run through each of these changes and their implications in more detail in our Capacity Market forecast.

Conclusion

The majority of the changes made in phase 1 of this consultation are short-term, temporary changes intended to ensure security of supply at a time when electricity prices are high and some concerns over supply margins remain

The publication of the Prequalification Registers in November will give an initial idea as to whether these changes have had the intended effect, with the outcome of the auctions in February 2024 ultimately providing the answer. In addition, eyes will be on further feedback from the government, following the analysis and development of the phase 2 proposals with these intended to be longer-lasting changes to align the scheme with net zero.

Cornwall Insight’s Capacity Market Service contains forecasts of clearing prices and auction dynamics for the specific T-1 and T-4 Capacity Market auctions. Also included is a long-term forecast of future T-4 auctions out to 2050. For further information of the service, please contact Bertie Bagge at b.bagge@cornwall-insight.com

Regulation and policy
Lee Drummee

Lee Drummee

Related thinking

Energy storage and flexibility

Off-peak electricity use and home generation could cut billions off energy costs

New analysis from Cornwall Insight and Smart Energy GB has revealed the substantial cost-saving potential of household flexible electricity initiatives such as time-of-use tariffs, smart meters, solar PV, and batteries. The has data revealed national wholesale and system electricity costs could be cut by an annual £4.6bn in 2030 and...

Net zero corporates and ESG

Help us understand your business decarbonisation challenges

Are you a large business impacted by the challenge of increasing energy costs and decarbonisation targets? If the answer is yes, then we’d love your help to find out more about the challenges you are facing. We recently published an insight paper on the challenging economic climate that businesses are...

Energy Market Design

How does REMA impact energy generation, flexibility and consumers?

The Review of Electricity Market Arrangements (REMA) is the largest review programme of GB electricity market arrangements for a generation. It comes at a time when European energy markets are suffering extreme turmoil. Depending on the outcome there could be significant implications for generators, flexibility providers, and, indirectly, consumers. REMA...

Energy Market Design

REMA: electricity market design choices

Electricity markets will serve as the foundation for the future GB energy system.  This article examines some of the market design decisions that will be considered by the Review of Electricity Market Arrangements (REMA). Market design goals At its most simple, a well-functioning market will attract enough potential “buyers” and...

Commercial and market outlook

Capacity, reform, and unlawful strategies: 5 things that happened yesterday

Capacity, reform, and unlawful strategies: yesterday was a busy day for energy geekery. The developments encapsulate the shorter and longer term challenges and uncertainties present in the energy market presently: Read the full article here

Energy storage and flexibility

Network charging – what’s been going on and why should I care?

Across Great Britain there are ~810,000km of wires and underground cables that make up our electricity network. Split between the higher voltage, transmission system and the lower voltage distribution system, these lines and cables are responsible for transporting electrons up and down the country to provide consumers with the necessary...

Business supply and services

Re-balancing the balancing costs –BSUoS charges to be levied solely on suppliers from April 2023

Balancing the electricity system costs money. National Grid in its role as Electricity System Operator (ESO) takes actions in every half hour to achieve the remarkable feat of keeping supply and demand finely balanced on our national electricity system – maintaining a system which runs between 49.8 and 50.2Hz with...

Low carbon generation

Reform in haste, repent at leisure: squaring electricity market reform with investor confidence

The review of electricity market arrangements (REMA) signalled by the energy security strategy could impact wholesale & balancing markets, & there could be a need to examine the capacity market rules & CFD contracts. It is too early to know what options will ultimately be adopted or when changes would...