Capacity mechanism 'isn’t working’, says former Npower chief

The government will be forced to come up with another mechanism to get new gas power stations built as the capacity market “isn’t working,” the former chief executive of RWE Npower has said.

“The trouble is nobody wants to build new gas right now because they can’t see enough spikes in the price to warrant building new gas without some sort of incentive,” said Paul Massara, speaking at an event in London.

Massara said excessive market intervention is one of the main barriers to more gas being built, adding that the unintended consequences of government policy are “absolutely rife in the energy sector at the moment.” He highlighted subsidies for renewables, which he said had left gas plants only able to run in “shoulder periods” for four to six hours a day.

“You’ve got an intervention in every single part of the market … Surprise, surprise if you intervene everywhere else you are going to have to intervene on gas”, he continued. “My prediction is that the government will have to come up with some mechanism beyond the capacity market to encourage new gas builds.”

Massara said one of the problems with the capacity market is the differing lengths of contracts available to bidders, which he said are distorting the market. In particular he said the inability of demand side response aggregators to secure long term contracts is making it difficult for them to attract investment.

He said the supplemental balancing reserve has also caused distortion, with the least efficient plants - unable secure capacity contracts - being granted reprieves by National Grid.   

Earlier this month shadow energy minister Alan Whitehead called for a basic redesign of the capacity market, telling Utility Week attempts to reform it are beginning to look like “flogging a dead horse”.

Only one new combined cycle gas turbine plant was awarded a 15-year contract in the first two capacity auctions. In October it was reported that Carlton Power's Trafford plant in Greater Manchester would not be operational by the start of its delivery period because of struggles over financing. Most of the new capacity contracted in the auctions came from small-scale diesel generators.

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