The energy and climate change committee called for a review of the legislated Electricity Market Reform to ensure that the capacity market includes demand-side technologies and the contracts for difference allow access to smaller developers.
In addition the committee has called for an urgent resolution to the potential conflict of interest posed by National Grid in its role as system operator.
Otherwise the government risks shackling consumers to higher than necessary costs and carbon emissions, warned committee chair Tim Yeo.
Yeo has recently been outspoken on the “pitiful” and “shaming outcome” of the capacity market auction which saw just 0.4 per cent paid out to demand-side technologies with the vast majority to be paid to existing fossil fuel plants.
“Every consumer in the country is currently subsidising spare electricity generating capacity that may only be used for a few hours each year. But smart technology has now made it possible to reduce unnecessary electricity demand at peak times, thereby reducing the number of polluting power stations that need to be switched on,” Yeo said in the report.
The root of the bias may be due to a reliance on National Grid modeling when determining key elements of government policy, the committee report suggested.
“Given its existing role as the system operator and owner of the transmission network it has a commercial incentive to procure additional capacity when it recommends how much capacity the Secretary of State should procure. This conflict of interest must be urgently resolved,” the report said.
In bringing forward new low carbon generation the committee also believes that smaller entrants to the market may be undermined due to infrequent auctions.
“The results of the first CfD auction for long term low-carbon contracts show that small companies or community energy projects are in danger of being shut out,” Yeo said.
“mportant concerns about coherence, value-for-money and market accessibility remain. As it stands, the capacity market and CfDs are in danger of pulling UK energy policy in opposite directions, rather than complementing each other,” Yeo said.