Capacity market ‘not fit for purpose’ claims report

The UK Government’s flagship Capacity Market scheme is “failing”, according to a report by the Institute for Public Policy Research (IPPR).

The think tank warned that system is providing poor value-for-money for bill payers, is working against the UK Government’s decarbonisation targets, and is too focused on large power stations instead of demand-side response.

Byron Orme, IPPR Research Fellow, said: “The government rightly wants to secure the country’s power supply.

“But its primary mechanism for doing so is failing to meet any of the government’s own objectives.”

Four key recommendations

The IPPR’s report recommends that:

  • the Capacity Market should be split into separate auctions for old and new capacity to encourage power stations to be built;
  • an emissions performance standard should be applied to all capacity in receipt of capacity payments in order to stimulate the building of cleaner power stations;
  • new large-scale gas power plants should commit to using carbon capture and storage (CCS) if they are to stay open in the long term;
  • and demand response providers should have access to longer contracts.

£2.8bn in subsidies

The two Capacity Market auctions held in December 2014 and December 2015 have so far handed out contracts worth a total of £2.8 billion.

The IPPR said that nuclear power stations will receive payments of £153 million in 2018 and £136m in 2019, despite them being almost certain to remain open without such subsidies.

The think tank added that so-called “diesel farms”, which produce more pollution from their generators than coal-fired power stations, have received £176m from the auctions, while coal-fired power stations have benefited from £373m.

Announcing a number of reforms to the Capacity Market recently, Energy and Climate Change Secretary Amber Rudd said it had “driven down costs and secured energy at the lowest possible price for bill-payers”.

> Download the report