Utility Week

14 | 23RD - 29TH SEPTEMBER 2016 | UTILITY WEEK Policy & Regulation Analysis T he government's much lauded capacity market was designed with the inten- tion of lling in the gaps emerging in the country's electricity generation portfolio, keeping the lights on and everything running smoothly into the next decade and beyond. Despite aiming to help the UK transition towards a low-carbon economy, it has proven to be a far from ideal, because the genera- tors winning the auctions have been largely already existing plant, rather than the new gas capacity the government was wishing for. On top of this it has also seen "dozens of dirty diesel generators" win auctions and a subsidy to run for the next 15 years. However, there may be a further ‚ aw with the capacity market system, and that is the distance between where auction-winning capacity is located and where the areas of highest demand are. This has the potential to be a signi cant issue because parts of the transmission and distribution networks are already constrained at times of peak demand or generation. In 2013 in detailed design proposals for the capacity mechanism, the Department of Energy and Climate Change (Decc) stated that it would operate as a single market and that it would be "inappropriate to introduce additional location signals". It said it did not anticipate any need for locational pricing "in the near future" because it was unlikely there would be trans- mission constraints at times of stress. However, some are unconvinced, and say the need for locational incentives could be required. Bloomberg Intelligence utilities analyst Elchin Mammadov tells Utility Week that as new forms of generation, in particu- lar renewables, come on to the transmission system, the issue will grow as more parts of the system become constrained. Coupled with this, the UK's electricity consumption is predicted to increase, espe- cially since the electri cation of transport and elements of heat occurs over the coming decades. This in turn will a' ect the ability of the generators to cost-e' ectively produce once network charges have been factored in. "If you listen to Iberdrola, one of the rea- sons why it wanted to close Longannet, a perfectly good coal- red plant, is because of grid charges that put it at a disadvantage," he said. A prime example of where this could become an issue is in the northeast of Eng- land. As the maps below show, demand from local authorities in this region in typically in the higher range (1,250 to 4,000GWh). At the same time, only 2.808MW of capac- ity won a contract under the last capacity mechanism auction. The nal factor in the Location, location, location No sooner were the capacity auctions over than it was realised the mechanism is not only giving rise to the wrong kind of generation, but much of it is also in the wrong place. Mathew Beech reports. TOTAL ANNUAL ELECTRICITY CONSUMPTION BY LOCAL AUTHORITY, 2014 HIGH LEVEL INDICATION OF POTENTIAL REGIONAL NEEDS CASE FOR REINFORCEMENT SYS study zones Very strong need case Strong need case Less than 500GWh 500 to 750GWh 750 to 1,000GWh 1,000 to 1,250GWh 1,250 to 4,000GWh Greater London Source: Decc Source: Electricity Networks Strategy Group

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