Opening up the energy storage market – A change in the Capacity Market

This week the UK Government has confirmed some standout changes to the Capacity Market. Changes for the better.

A simple overview of the key changes and what they mean to the Energy Storage sector.

 

What is the Capacity Market?

The Capacity Market is part of the government’s Electricity Market Reform package. In essence it’s designed to ensure electricity supply, ensure providers deliver energy when needed. In turn encouraging investment to replace older power sources with new low carbon generation solutions.

 

“The changes to the Capacity Market today will help make it easier for cutting-edge clean technologies to compete.”

Dr Nina Skorupska CBE, Chief Executive of the REA

The key changes

  • Allow Demand Side Response (DSR) to apply to prequalify to bid for all the agreement lengths available in the CM (up to fifteen years) if they can demonstrate they meet the relevant capital expenditure (CAPEX) threshold
  • Reduce the Minimum Capacity Threshold from 2MW to 1MW and enable Secondary Trading of Capacity Obligations under the Minimum Capacity Threshold if an entire Capacity Obligation is being traded
  • Provide legislative underpinning for the long-standing 50% set-aside commitment for T1 auctions and the methodology for determining the minimum amount of set-aside
  • Introduce a formal, annual review of new capacity technologies not currently competing in the CM but which could effectively contribute to security of supply
  • Introduce a reporting and verification mechanism for the introduction of CO2 emission limits in the CM in line with original proposals in the consultation
  • Remove the exclusion on LT STOR contract holders competing in the Capacity Market
  • The emission limits will apply to capacity which existed before 4 July 2019 (described in this Government Response as “existing capacity”) from 1 October 2024

 

What the changes mean

  • Clean technologies will now find it much easier to compete in the market
  • Strong incentives for Energy Storage companies and technologies to invest time and money in the UK
  • Stimulate UK storage developers to amp up their activities
  • Emission limits with mandatory reporting and verification should help replace the high carbon-emitting plants and move funding to cleaner means
  • reduced capacity thresholds will additionally ensure a greater number of smaller sites can participate in auctions.

“The outcome is encouraging to the energy storage industry, the changes will help progress a number of projects which in turn will assist in unlocking the vast potential of renewable power in the UK…”

Vijay Shinde, Chair of the REA’s Energy Storage and Large Scale Power Forums and CTO of Harmony Energy
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