Capacity auction provides a confidence boost

The results of the second Capacity Market auction provide encouragement for those looking to get involved in Demand Side Response initiatives, according to SmartestEnergy’s Robert Owens.

There were no big surprises in last week’s Capacity Auction aimed at ensuring there is enough power to meet the nation’s needs in 2019/20.

The second of the Government’s auctions saw just over 46GW secured at £18/kW. Although that was over £1 less than the figure seen in the first capacity auction last year - mainly due to the impact of interconnectors being able to participate - it was higher than some commentators had been predicting.

Longer term there is also an expectation for the price to rise as more generating capacity reaches the end of its working life.

The fact that some of the big players taking part in the latest auction chose not to take advantage of the opportunity to lock in the clearing price for much longer highlights how they expect the figure to rise in future auctions.

Growing interest in DSR
Perhaps the most interesting aspect of the latest auction result was the significant growth in Demand Side Response (DSR) capacity which rose by more than 300MW on the previous auction.

The increase highlights the growing interest in DSR we are seeing across the market and the price achieved in the latest auction should also help underpin confidence for more businesses to look to get involved in future.

It also provides a pointer for what might happen in the transitional Capacity Market auction taking place next month.

These transitional auctions – the second will be held in January 2017 - are specifically focused on encouraging DSR.

They have slightly less onerous participation requirements and those taking part can gain valuable experience about the process which will put them in a better position to take part in the main auctions.

The nature of the make-up of participants in the transitional auction means prices have a chance to clear slightly higher than was seen in the latest main auction, broadly in the range of £15-£20/kW.
SmartestEnergy will be taking part in the auction after launching our own SmartDSR service recently. It is something which our customers have certainly shown a lot of interest in so far.

As well as the opportunity to receive payments for participation, even if not called on to respond, businesses also see other benefits from playing an active role in helping support the grid and avoid blackouts.

For those interested in making the most of the potential of DSR, it is something to start looking at sooner rather than later given it can take some time to get ready in terms of working out how much businesses could reduce demand by if requested and installing any equipment or software required.

To find out more about SmartestEnergy’s SmartDSR service, click here
To read more about National Grid’s focus on DSR click here