Capacity market should be split in two: IPPR

The capacity market should be split in two to provide greater incentives for the construction of new gas plants, according to a report from the Institute for Public Policy Research (IPPR).

IPPR said the capacity market “is not fit for the purposes for which it was designed” and suggested it should be split in two, with separate auctions held for old and new capacity.

“The payments would become more targeted to the capacity that bids for them and the scheme would be more efficient overall. There would also be far greater control of the amount of new capacity that is rewarded through the scheme,” the report said.

It also recommended an emissions performance standard should apply to all plants receiving payments, “explicitly” preventing carbon intensive generation from bidding. “This limit could be set at a level that does not impact on any less carbon-intensive generation, such as new gas, that the government wants to incentivise.”

Additionally, IPPR suggested that, in order to access longer-term contracts, large-scale gas plants should either be built with carbon capture and storage or be required to install it in the future. The report said there can be only a very limited role for unabated gas generation “given the very low levels of carbon emissions that the UK’s electricity supply needs to be producing by 2030”.

Finally, demand-side response aggregators should have access to longer contracts as the current disparity “makes it for difficult for them to compete with traditional generation”.

Only one new combined cycle gas turbine (CCGT) plant was awarded a 15-year contract in the first two auctions. In October it was reported Carlton Power’s Trafford plant would not be operational in time for its delivery deadline because of a struggle to secure financing. Carrington Power also secured a contract for its CCGT plant but that was only for one year.

Last month the government put forward a series of proposals to reform the capacity market but since then there have been several calls for more fundamental change.

Shadow energy minister Alan Whitehead said there should be “basic redesign” of the mechanism, as reforms are beginning to look like “flogging a dead horse”.

Earlier this week former Npower chief executive Paul Massara said the government will be forced to create an entirely new mechanism if its wants new gas plants to be built.