30.03.2017, 19:33
UK power capacity market not a level playing field
OREANDA-NEWS. The UK's power capacity market still fails to offer generators a level playing field and must be reviewed again by the government, German utility Uniper said.
But the scheme should not be abolished and is the right policy to ensure long-term security of power supply, the utility said.
The government was forced to make the capacity market technology-neutral in order to oblige with EU state-aid rules on competition. But this has meant that owners of large-scale coal or gas-fired plants compete with interconnectors with continental Europe and small-scale embedded capacity.
This has put large-scale generators at a disadvantage. Power imported from continental Europe avoids the additional costs imposed by the UK-only carbon price floor, while embedded generators face reduced upfront costs as they do not need to pay for access to the transmission network, Uniper's UK chairman Felix Lerch said.
Uniper, which won contracts for around 5.5GW of its existing generation capacity in last year's T-4 auction for winter 2020-21, will continue to take part in future auctions but urged the government to ensure the scheme does not favour some technologies over others.
"The capacity market has been distorted by embedded generation benefits and interconnectors. We are happy to compete in the scheme but only if there is transparency and a level playing field," Lerch said.
Embedded generation capacity feeds its supply into local distribution networks rather than the wider transmission system. But such facilities are still able to compete in the capacity market so that the grid may call on them to increase their output during any periods of system stress, reducing the amount of demand that the transmission system is required to meet.
But the capacity-market mechanism should not be completely abandoned by the government, and these initial "teething issues" are to be expected during the early years of such a policy, Lerch said. The UK can help to encourage the introduction of similar capacity market mechanisms across Europe, he said.
"Uniper supports the capacity market - the UK is leading the way across Europe. It is still a relatively young policy and it can still change," Lerch said.
The capacity market aims to ensure the UK's power supply security by offering contracted generators with an extra financial incentive to make their capacity available for operation during the tightest periods of winter. It will come into effect at the start of winter 2017-18.
But the scheme should not be abolished and is the right policy to ensure long-term security of power supply, the utility said.
The government was forced to make the capacity market technology-neutral in order to oblige with EU state-aid rules on competition. But this has meant that owners of large-scale coal or gas-fired plants compete with interconnectors with continental Europe and small-scale embedded capacity.
This has put large-scale generators at a disadvantage. Power imported from continental Europe avoids the additional costs imposed by the UK-only carbon price floor, while embedded generators face reduced upfront costs as they do not need to pay for access to the transmission network, Uniper's UK chairman Felix Lerch said.
Uniper, which won contracts for around 5.5GW of its existing generation capacity in last year's T-4 auction for winter 2020-21, will continue to take part in future auctions but urged the government to ensure the scheme does not favour some technologies over others.
"The capacity market has been distorted by embedded generation benefits and interconnectors. We are happy to compete in the scheme but only if there is transparency and a level playing field," Lerch said.
Embedded generation capacity feeds its supply into local distribution networks rather than the wider transmission system. But such facilities are still able to compete in the capacity market so that the grid may call on them to increase their output during any periods of system stress, reducing the amount of demand that the transmission system is required to meet.
But the capacity-market mechanism should not be completely abandoned by the government, and these initial "teething issues" are to be expected during the early years of such a policy, Lerch said. The UK can help to encourage the introduction of similar capacity market mechanisms across Europe, he said.
"Uniper supports the capacity market - the UK is leading the way across Europe. It is still a relatively young policy and it can still change," Lerch said.
The capacity market aims to ensure the UK's power supply security by offering contracted generators with an extra financial incentive to make their capacity available for operation during the tightest periods of winter. It will come into effect at the start of winter 2017-18.
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