I am tabling this statement to inform Members of a publication relating to the capacity market. The publication provides a response to the Government’s recent consultation on improvements to capacity market rules and treatment of consumer-led flexibility. It sets out the Government’s intention to proceed with all of the changes proposed in the consultation, after all received majority support from respondents.
This Government have committed to delivering clean power by 2030 and accelerating progress towards net zero, while ensuring continued security of supply. The capacity market is Great Britian’s main mechanism for ensuring security of electricity supply by procuring additional capacity needed to meet peak demand ahead of time.
The funding provided through the capacity market incentivises investment in new and existing capacity, as well as interconnectors, batteries, and consumer-led flexibility. This capacity is acquired through annual auctions held at intervals four years ahead and one year ahead of their respective delivery years. The Government regularly amend the capacity market prior to auction cycles to ensure it remains fit for purpose, is cost-effective, and supports broader strategic objectives.
This Government response sets out our intention to proceed with policies to streamline how consumer-led flexibility, delivered by demand-side response mechanisms, participates in the capacity market. As participation in the capacity market from demand-side response portfolios increases, it is important that capacity market rules are updated to better incorporate and enable access from technologies that can respond flexibly to periods of high energy demand. In addition, the Government are also introducing a termination fee for demand-side response capacity market units that fail to demonstrate agreed capacity, improving delivery assurance to enable the capacity market to fulfil its central principle of ensuring security of supply.
The response also outlines our intention to move forward with changes to the capacity market rules to improve accessibility and provide policy intent clarifications. The changes confirmed in the Government response will enable capacity market units to change their opt-out status following a change in their operational circumstances and will remove rules on transitional and coronavirus arrangements which are no longer required. The proposed changes also extend a policy to allow existing generators to use data older than 24 months to prequalify for auctions held in 2026 and clarify the role of the scheme’s delivery body. These changes should increase participation in future Capacity Market auction and therefore increase competitiveness and value for money for consumers.
The Government intend to introduce these changes prior to the 2025 prequalification period for the next capacity market auctions. This will give participants clarity and certainty ahead of their entrance into the auctions and allow them to adapt to the changes we have made.
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