Tim Probert, Power Engineering International
There is increasing talk that Great Britain will re-introduce capacity payments to incentivize low carbon electricity investment. Both the current Labour government and the Conservative Party have made noises to this end recently.
Frankly, Britain has no choice. In 2001, the government replaced the existing pool trading system with NETA (New Electricity Trading Arrangements) in an attempt to increase competition among Britain’s power generators and drive down prices.
To this end, it was a success. No longer were generators the only bidders in the wholesale market - under NETA both generators and suppliers were able to trade via contracts and exchanges, meaning that retailers were able to get better prices.
Domestic power prices did initially fall, mainly due to an oversupply of gas generation and cheap gas. However, this, and the discontinuation of the pool system’s capacity payments mechanism, had the unfortunate effect of causing the mothballing of coal plants and was a major factor in the bankruptcy of nuclear operator British Energy.
It also curbed generators’ enthusiasm to invest in new power plants. Furthermore, due to increasing consolidation in the sector, generators and retailers tended to be one and the same - Peter was paying Paul for the same electricity sold in the wholesale market. With this comfortable situation, generators had little incentive to pass on lower wholesale prices to consumers and further curbed enthusiasm to invest.
So now British energy secretary Ed Miliband has gone on the record to say that he is actively considering a return to capacity payments for low carbon generation, i.e. wind, nuclear and CCS-equipped fossil fuel plants, to boost investment.
With a ‘free market’ system like NETA, the future will be gas, gas and more gas. Just last week saw the official opening of a large CCGT plant (Marchwood, nr. Southampton) and there are many more in the pipeline. There is no doubt that this approach will deliver some of the necessary gigawatts needed to replace the plethora of soon-to-be decommissioned coal and nuclear plants.
Yet carbon emissions targets and the question of energy security cloud the issue. Being potentially 80% reliant on increasingly imported gas for electricity does not strike me as particularly sane, while it does little to achieve long-term carbon emissions targets.
A move to capacity payments is necessary to pay for little-used back-up power for the UK’s colossal expansion of offshore wind power. Moreover, it would incentivize new build nuclear, reverse falling reserve margins and ameliorate the likelihood of blackouts, which, lest we forget, are actually forecast in the government’s own figures for 2017…
