Trade body says mechanism fails to recognise whole-system benefits of certain types of generation

Low-carbon and fuel-efficient plants should be given a leg-up in the capacity market, the Association for Decentralised Energy (ADE) has argued in a new report.

As things stand, the mechanism fails to reflect the value of different types of generation to the energy trilemma, according to the trade body. This has incentivised the construction of large fleets of gas and diesel engines.

Citing projections by National Grid and other market analysts, the report says up to 14GW of new gas generation is expected to be deployed in the UK by 2030 and “as much of this capacity as possible” should be combined heat and power (CHP).

By displacing more expensive and fuel-thirsty power stations, the ADE says CHP plants are already delivering around £375 million of whole-system savings each year.

Ensuring that a third of the new gas capacity built by 2030 consists of CHP rather than power-only gas generation would boost this yearly saving to between £656 million and £774 million, the association claims.

To enable this to happen, the capacity market should be reformed so it recognises “the life-time efficiency benefits to consumer value of different power plants.”

“This value recognition could be accomplished by providing a bid price uplift in auctions for lower carbon or more efficient plants,” the report states.

Among other things, it also calls for carbon price support – the British top-up to European carbon price – to be maintained at its current rate until 2025, and for exported electricity from CHP to be exempt from the levy.

National Grid should follow up its commitment to reform the balancing services markets to make them simpler, more transparent and more accessible, and implement a specific incentive for providing system inertia. Participation in the capacity market should similarly be made easier, according to the study.

ADE director Tim Rotheray said: “By installing CHP, thousands of businesses across the UK could help lighten the load of the cost of the energy transition while delivering much needed new capacity, helping to balance the grid and reduce network investment costs.

“To enable a more competitive energy economy, it is vital that policies including the capacity market, carbon taxes and network charging arrangements recognise and reward CHP’s long-term value to consumers and the environment.

“Enabling CHP gives real potential to make a user-led energy revolution a reality.”