On December 15, 2011, the UK Department of Energy and Climate Change (DECC) published a Technical Update1 to a White Paper 2011 on the future development of the UK electricity industry future.
Reforms to the UK’s electricity market will drive low carbon investment and boost energy security while keeping the costs for consumers down. As the UK faces an energy investment challenge with a fifth of generating capacity coming to the end of its life in the next ten years, electricity demand is projected to double. This will create difficulties in maintaining a 10-15% reserve margin.
The Technical Update is focused mostly on the capacity markets and sets out the Government’s decision to legislate for a capacity mechanism in the form of a Capacity Market administered by the system operator, National Grid. According to the new mechanism, the government will set the amount of capacity to be contracted at auction, and all existing and future generators will be invited to bid. Auctions will be held four years ahead of time to allow time for new plants to be built. DECC has yet to decide how the capacity of plants yet to be built is to be treated in the auction compared to existing capacity. Wind turbines are also being considered for inclusion in the auctions; however, conditions of their participation are yet to be determined.
Capacity contracts awarded at the auction will be tradable on a secondary market. The capacity mechanism and other parts of the electricity market reform will be presented by DECC to parliament in May 2012. It hopes to have secondary legislation with further details implemented in 2013, and aims to publish its first so-called delivery plan, which will set out how much capacity the UK needs that year.
For further information: http://www.decc.gov.uk/assets/decc/11/meeting-energy-demand/energy-markets/3884-planning-electric-future-technical-update.pdf
This article was reprinted with permission from ZE Data Watch www.ze.com/. The full publication is available at this location: http://www.ze.com/datawatch/DataWatch_January.pdf.