New Thinking: Sugar Plum Fairies

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on Dec 19, 14 • posted by

New Thinking: Sugar Plum Fairies

CM cropped medSugar Plum Fairies

Catherine Mitchell, IGov Team, 19th December, 2014

The provisional results of the capacity market auction have been announced. Overall, around 50 GW of capacity received a capacity payment, about 76% of the MWs entered – which must raise questions whether there was a need for it in the first place. Of that 50 GW about 34 GW (i.e. 68.4%) is existing plant and only around 5% of that 50 GW is new build. Of the 50 GW, 19% is existing coal, whilst Proven and Unproven DSR is only around 175 MW (i.e. 0.36%). In addition, of the 50 GW 89% is for a one year contract in 2018/9.

This will cost £990m/year in subsidies, with a clearing price of £19.40 kW, adding £11.40 on bills – the vast majority of which will go to the large, well-known generators who have done a great job in persuading Government that unless customers pay this extra amount it would be uneconomic for them to keep the power plants running and the lights will go out. Government should never have fallen for it and they should never have designed the CM in this way (see here and here).

Quite what the benefit of this £1bn Christmas present is to GB energy policy is unclear, other than 2018/9 will have a lot of availability! It shows that we did not need the CM in the first place – given the 65 GW entered – and, it’s done a bad job of providing the missing money in the longer term. Without doubt, the CM, if it is to continue, has to be completely rethought.

All of this money would have been far better used to develop a sensible demand side response market. PJM’s market serves a population of 51 million similar to GB. Its market monitor recently announced that the 2010 auction for 2013/4 provided contracts for 10,500 MW; SAVED consumers $12bn, and routinely brought down the clearing price in the capacity market by two thirds.

DECC’s auction reflects GB’s current energy policy: wasteful, thoughtless, parochial and supporting the status quo. This was a real opportunity to implement a radically different, demand focused mechanism and we blew it. Happy Christmas electricity generators.


This blog was amended on 5th Jan 2015

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