There will be more capacity in the auction than it will take. This keeps the auction competitive and lowers the price of electricity paid by consumers. The duration of the contracts varies according to the financing needs. There are three types of agreements: one year for existing projects, three years for generators that need to be renovated, and 15 years to build new production facilities. Note: On 15 November 2018, payments under the capacity market mechanism and future support to the capacity market were suspended. This is explained by the fact that the General Court delivered its judgment in Tempus Energy Ltd and Tempus Energy Technology Ltd v Commission (Tempus judgment (see LNB News 15.11.2018 90 for the examination of the judgment itself), by which the Commission`s decision of 23 July 2014, which concluded that the capacity market support scheme in the United Kingdom was compatible with EU State aid rules. In order to generate CM revenue for our clients, we inject their assets into capacity auctions that set the price. Suppliers who succeed at the auction(s) receive a capacity agreement confirming their capacity market obligation and payments. Monthly payments for the provision of capacity shall be made to capacity providers in accordance with their capacity agreements. Monthly payments will be received by suppliers on the basis of the expected demand between 4 p.m. and 7 p.m. – from November to February, which will be used to determine their market share.
Once the actual data are available, payments are cross-checked on the basis of these revised data. The graph below illustrates the monthly payments: Update of the target capacity for the capacity auction At the request of the UK Government, National Grid and Electricity Settlements Company are in the meantime operating the capacity market programme to ensure that capacity providers can benefit from deferred payments after the standstill period (subject to State aid approval). Additional steps are being taken to verify the continuity of billing agreements for suppliers. It also acknowledges that some of the new capacity providers that registered at the first auction may not be able to deliver and will need to be replaced at this stage. The government has set up the capacity market (CM) as part of its policy of reforming the electricity market. It aims to encourage investment in more sustainable and low-carbon electricity capacity at the lowest cost to energy consumers. This is necessary to ensure the supply of electricity in the future. The capacity market ensures security of electricity supply by providing payment to reliable sources of capacity. The capacity market must ensure that sufficiently reliable capacity is available by providing payments to encourage investment in new capacity or to keep existing capacity open. EMRS manages the payment mechanism. The duration of the contracts varies according to the financing needs. The June 2014 impact assessment explains why the government is intervening in the market, as well as the costs and benefits of the intervention.
Letter from Amber Rudd on the 2015 capacity auction on electricity market reform. For each year of delivery, two auctions are organized in order to obtain capacities. The first auction takes place four years before the delivery year in order to have enough time to develop new capabilities. . . .