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Capacity market tech flexibility plays into UK 'net zero' agenda

Out-Law News | 07 Dec 2020 | 4:26 pm | 2 min. read

Steps taken by the UK government to enable a broader range of energy generating technologies to bid to supply electricity to UK homes and businesses are examples of regulatory adjustments that can help the UK meet its target of 'net zero' carbon emissions by 2050, an expert in energy market regulation has said.

Lindsay Edwards of Pinsent Masons, the law firm behind Out-Law, was commenting after the government said that it sees potential for tidal and geothermal energy generation, as well as electric vehicles connected to the grid, to formally contribute to the UK's energy security.

The electricity security and market evolution (ESME) team within the Department for Business, Energy and Industrial Strategy (BEIS) raised the prospect of businesses behind tidal, geothermal and electric vehicles' grid connectivity bidding to participate in UK capacity market auctions in its recent response to feedback it received to an open letter it had issued in September on new technologies in the capacity market.

Introduced under the 2013 Energy Act, capacity market auctions are intended to boost UK energy security in the medium term until the government's full electricity market reform (EMR) infrastructure investment strategy begins to take effect. Energy sources and generators are able to bid to provide a share of capacity when the system needs it, and will receive a regular revenue stream to ensure that they are able to do so. This ensures that supply continues to meet demand as more intermittent renewable generation technologies come on stream.

However, only energy generation technologies falling with a 'generating technology class' (GTC) are eligible to participate in the capacity market (CM) auctions.

Lindsay Edwards

Lindsay Edwards

Senior Associate

The identification of three technologies – tidal, geothermal and electric vehicles – which may require access to the capacity market in the future is a welcome step towards increasing the flexibility of the capacity market

The ESME team said that tidal and geothermal technologies "may be capable of contributing to security of supply", but that "it will be some time before they are ready to enter the CM" as they currently "appear to not be commercially viable in Great Britain (GB) without other forms of financial support from government".

However, the ESME team said it has already consulted with the National Grid electricity system operator (ESO), which is responsible for directing the supply of electricity across GB on a live basis to meet demand, to determine what "de-rating factors" should apply to tidal and geothermal technologies for when generators using those technologies are able to participate in the capacity market. De-rating factors dictate the level of capacity that an energy source can provide under a capacity market agreement.

In relation to electric vehicles connected to the grid, the ESME team said it is "engaging with the ESO on how best to consider this technology and enable its participation in the CM".

Edwards said: "The identification of three technologies – tidal, geothermal and electric vehicles – which may require access to the capacity market in the future is a welcome step towards increasing the flexibility of the capacity market. It is in line with BEIS’ decision of last month to introduce greater flexibility in relation to the capacity caps in contracts for difference (CfD) auctions, so that the cap can be a ‘soft’ constraint – meaning that it can be breached, with conditions – as opposed to being a ‘hard’ constraint which can result in large final bids being rejected. Both are examples of the small but tangible changes that are being made now in order to allow the regulatory regime to adapt to and meet the challenges of 'net zero'."

The ESME team said it intends to use its annual open letter process on new technologies to chart the progress of new energy generation technologies, through input from stakeholders, "with a view to reducing the risk that projects are ready to enter the CM before de-rating factors have been developed".