The Department for Business, Energy and Industrial Strategy (BEIS) has launched a consultation on a new emissions limit for existing installations participating in the capacity market.
The restriction is required by an EU directive which came into effect on 18 July and forms part of the Clean Energy Package – a wide-ranging update to EU’s energy policy framework.
The directive states that new build projects becoming operational on or after 4 July 2019 should emit no more than 550g of carbon dioxide per kilowatt-hour. The capacity market rules have already been amended to introduce this limit.
It also states that existing installations as of 4 July 2019 should emit no more than 550g of carbon dioxide per kilowatt-hour (gCO2/kWh), or 350g of carbon dioxide per year for each kilowatt of installed capacity. The directive requires that this limit be transposed into national law by 31 December 2019 and take effect by 1 July 2025.
BEIS noted that installations with carbon dioxide emissions of greater than 550gCO2/kWh could continue to receive capacity payments by restricting their running hours.
As part of the consultation, the department asked stakeholders to give their views on whether the new emissions limit for existing capacity should be introduced as late as possible on 1 July 2025 or to coincide with the start of the new delivery year on 1 October 2024.
It also sought feedback on its proposal to reduce the contract length for refurbished generation to one year in the upcoming auctions. Refurbished generation is currently able to bid for three-year contracts which, if awarded in the upcoming four-year-ahead (T-4) and three-year-ahead (T-3) auctions, would run beyond 1 July 2025.
And lastly, BEIS queried whether the arrangements for terminating contracts and recovering the associated payments in instances where a capacity provider has made a false or inaccurate declaration should be updated in light of the new emissions limit.
The deadline for responses is 6 September.
Alongside the consultation, BEIS also published its five-year review of the capacity market. The department issued a call for evidence in August 2019 and based on the responses has identified three key themes for improvements: future-proofing and maintaining technological neutrality; simplification; and procuring the right amount of capacity.
In addressing the first of the three themes, the department has committed to undertake a number of specific actions, which are listed below:
- Review potential issues concerning demand-side response, in particular relating to delivery assurance measures, available contract lengths, de-rating factors, transparency over the components within a capacity market unit and the minimum capacity threshold of 2MW.
- Monitor contract lengths for all technologies.
- Review and simplify de-rating factors for all technologies where appropriate.
- Address issues relating the connection capacity for co-located projects.
- Work alongside government to address market distortions emanating from outside of the capacity market.
- Continue planning for the incoming requirement being introduced as part of the EU’s Clean Energy Package for foreign installations to be allowed to participate in the capacity market.
- Gather evidence on within-contract capacity adjustments for batteries, for instance, due to degradation.
- Gather evidence on the performance of overseas capacity mechanisms.
- Consider the case for moving back the T-1 and T-4 auctions so there is a full one year/four years between the auctions and the delivery year.
A further consultation examining the topics raised will take place by the end of 2019. BEIS said the consultation will be split into two parts, with the first looking at strengthening the penalty regime, reducing the 2MW minimum capacity threshold and addressing issues relating the connection capacity for co-located projects.
Among other things, the second part will look at demand-side response related issues, de-rating factors for all technologies and termination events and fees.