A package of reforms to the Capacity Market electricity supply tool has been confirmed following a consultation launched in March.
The Capacity Market, which is part of the government’s Electricity Market Reform package, aims to secure electricity supply by paying providers to ensure there is enough electricity available during peak times in the winter.
It also aims to encourage investment needed to replace older power stations and to provide backup for more intermittent and inflexible low carbon generation sources.
Two Capacity Market auctions to secure energy for delivery in 2018/19 and 2019/20 have already been held. They procured relatively little new capacity, as existing capacity is able to meet target levels, but the government said that both of the auctions went smoothly and secured capacity at very low prices for consumers.
Response to the consultation showed support for three key reforms, the government said. These included buying more electricity and buying it earlier, and tougher sanctions for firms that go back on their Capacity Market agreements.
In the light of this, the government said it would raise termination fees, disqualify failed units from two years’ of future capacity auctions, and increase credit cover for most applicants already required to lodge credit cover.
It also plans to hold an auction in January next year to bring forward the first Capacity Market delivery year to 2017/18.