The government has outlined proposals to reform Great Britain’s Capacity Market, including multi-year contracts for low carbon flexible capacity, such as smart ‘demand side response’ technologies and small-scale storage.

The proposals, which were published for consultation today, aim to improve the robustness of Great Britain’s energy supply, and meet net zero goals by providing greater incentive for investment in low carbon technologies.

The Capacity Market scheme uses competitive auctions between technologies such as batteries and gas-fired generators, to secure the capacity needed to meet Great Britain’s peak electricity demands, safeguarding against the possibility of future blackouts. Since its introduction in 2014, the landscape in which the Capacity Market operates has shifted with renewable energy now making up a significant proportion of Great Britain’s electricity generation system.

The plans published today aim to ensure the scheme keeps pace with this transition to cleaner energy sources and technologies – often cheaper than fossil fuel counterparts – and can support the delivery of a decarbonised power system by 2035, without compromising security of supply.

Emissions reductions requirements for fossil fuel generators

Proposals include new contracts for low carbon technologies to incentivise their participation in CM auctions, creating new timelines and requirements for oil and gas generators to reduce emissions from 2034, such as through implementing carbon capture and hydrogen to decarbonise and reducing running hours, and strengthening the scheme’s ability deliver security of supply in times of electricity system stress.

Energy and Climate Minister, Graham Stuart, said: “As we move towards cleaner and cheaper energy, it is essential that the UK provides secure and affordable energy for all. The plans set out today will deliver this reliable energy and ensure the scheme that sits at the heart of Britain’s energy security is fit for the future.”

Innovative technologies, such as batteries, are playing an increasingly important role in keeping the lights on across Great Britain. New technologies, such as Carbon Capture, Utilisation and Storage (CCUS) and hydrogen power and storage, are expected to come online over the coming decade.

GB Capacity Market Reform – the proposals at a glance:

  • Incentivising greener, flexible technologies to compete in CM auctions by offering multi-year contracts for low carbon flexible capacity, such as smart ‘demand side response’ technologies and smaller-scale electricity storage, supporting the move towards delivering secure, clean and affordable British energy in the long term.
  • Ensuring a clear pathway for carbon intensive forms of capacity as the UK transitions to net zero and the capacity mix of the CM diversifies, by sending a clear signal to oil and gas generators about the timelines and requirements for emissions reduction in the 2030s and seeking evidence on mitigating any barriers this capacity may face in decarbonising.
  • Underpinning these efforts with a proposed new lower emissions limit in the Capacity Market which will kick in for new build plants from 1 October 2034, meaning all new oil and gas plants receiving long term agreements through the CM will be obliged to lower emissions, through decarbonising their capacity by introducing carbon capture, hydrogen and other low carbon methods into their generation and by reducing running hours.
  • Taking steps to strengthen the scheme’s ability to deliver security of supplyby reforming the CM’s approach to performance testing to ensure confidence as early as possible in the winter that capacity is available and strengthening the non-delivery penalty regime to send a clear signal that capacity must deliver in times of electricity system stress.