The Department for Business, Energy and Industrial Strategy (BEIS) has proposed two temporary rule changes to improve liquidity in the next round of Capacity Market auctions.
The proposals were prompted by concerns there may otherwise be insufficient capacity to meet the procurement target for the year-ahead (T-1) auction, increasing cost to consumers and jeopardising the security of supply.
In a new consultation, the department said although the delivery body for the auctions, National Grid Electricity System Operator, has not yet completed its analysis for the relevant winters, the target for the T-1 auction for delivery in 2023/24 is likely to be “stretching.”
“Therefore, it is prudent to take steps ahead of prequalification to ensure that the participation in the auction is maximised,” it explained. “We have identified some potential barriers to entry, that are set out in this consultation, which we would propose to remove for the 2022 prequalification window.”
The first of these changes would be to postpone the planned introduction of a statutory requirement for fossil fuel generators to obtain independent verification of their emissions, which have been limited since 2019.
BEIS said the requirement, which is currently due to come into effect for the 2022 prequalification window, has already been delayed by a year already due to the timeframes needed for the accreditation of independent emissions verifiers (IEVS).
The department said the United Kingdom Accreditation Service – the organisation responsible for the accreditation of all IEVs in the UK – is aiming to complete several accreditations before 2022 window but “a number of factors have caused significant delays to this work” meaning “there is no guarantee that sufficient IEVS will be available”.
“This creates the risk of bottlenecks forming if multiple applicants were to seek to access the services of too few IEVs (or, in an extreme scenario, if no IEVs are available at all),” it added.
The department is therefore proposing to delay the introduction of the requirement by another year.
It acknowledged that the delay could theoretically lead to higher carbon emissions through falsified emissions claims, but said there is no evidence this has happened before and it considers the risk to be low.
BEIS has also proposed to amend a rule requiring existing generators to demonstrate their performance using operational data from the 24 months prior to the relevant prequalification window.
The rule stipulates that existing generators must identify three settlement periods during the two years prior to the window in which the unit delivered a net output equal to greater than its anticipated de-rated capacity and report the operational data for each of those settlement periods.
However, BEIS said the rule as it currently stands could prevent generators that were mothballed more than 24 months before the window from bidding in the corresponding auctions. It is therefore proposing to allow existing generators that cannot otherwise comply with the rule to submit performance data from the most recent 24 months of their operation.
It noted that existing generators had previously been able to do this until Ofgem amended the rule in 2018.
BEIS said some stakeholders have indicated it may be possible for plants that have been mothballed for more than 24 months to prequalify under the current rules if they enter as a refurbished unit, but said it is not supportive of this workaround.
It conceded that there is a risk that the rule change could lead to generators winning agreements they cannot fulfil, for example, due to problems whilst de-mothballing but said there are other measures in place to incentivise and test delivery.
The department said it is concerned that implementing this rule change as an enduring solution could create opportunities for speculative bidding by mothballed plants. It therefore intends the rule change to be time-limited, only applying to the 2022 prequalification window.
BEIS said the failure to implement its proposed rule changes could result in the next T-1 auction being undersubscribed, raising the clearing price and putting security of supply at risk. Although it is not concerned about this this happening for the four-year-ahead (T-4) auction, the department said the changes would nevertheless increase competition and lower costs to consumers.
The deadline for responses to the consultation is 22 June.