The government has confirmed its intention to allow intermittent renewables to compete alongside dispatchable technologies in the capacity market.
Responding to a consultation on technical amendments to the scheme, the Department for Business, Energy and Industrial Strategy (BEIS) said allowing renewable projects to pre-qualify for the three-year-ahead (T-3) auction now scheduled for January is “fair and necessary”.
Although the majority of respondents supported the proposals, some stakeholders argued that allowing non-dispatchable technologies into the capacity market is counterintuitive and at odds with the goal of the scheme. They said there is no guarantee they will be able to deliver during times of stress and could undermine its legitimacy.
However, BEIS dismissed these concerns, explaining that, despite their intermittency, wind and solar make a “measurable contribution” to security of supply, which is already accounted for when setting procurement targets.
“Accordingly, their participation in the capacity market does not increase security of supply risks, but rather alters where and how their contribution to security of supply is accounted for,” the department added. “Remunerating this contribution is a key principle of the technology neutral framework of the capacity market”.
BEIS said it was always intended for the capacity market framework to allow for participation of renewables at some point. With subsidy-free renewables emerging sooner than anticipated, “the impetus for this change has become clear”.
To prevent the duplication of government support, installations receiving subsidies through the contracts for difference, renewables obligation and feed-in tariffs schemes will be excluded from bidding. Projects benefitting from other forms of state aid may still be eligible but will have to declare this when qualifying.
BEIS said it is unclear whether the benefits renewables could bring in terms of lower clearing prices would be offset by the cost of supporting projects that would have gone ahead anyway. It said remunerating existing unsubsidised renewables is expected to increase the annual cost of the scheme by 0.5 per cent by 2030.
The department noted that capacity market revenues for renewable generators are likely to be “relatively minor” when compared to those from the wholesale market and therefore unlikely to have a “material impact” on installations.
In January, the electricity system operator (ESO) at National Grid published draft de-rating factors for renewables participating the T-3 capacity auction for delivery in 2022/23 of 8.98 per cent for onshore wind, 14.65 per cent for offshore wind and 1.17 per cent for solar.
On this basis, an onshore wind installation that secured a contract at the most recent clearing price of £8.40/kW would have been paid just £0.75/kW.
The ESO recently published an updated timetable for upcoming capacity auctions following the suspension of the scheme in November.