The Capacity Market is a mechanism designed to ensure security of electricity supply by providing a payment to participants who can offer a reliable source of capacity to the network, in addition to their electricity generation revenues.
The initiative was introduced by the government as part of their Electricity Market Reform package. It acts as an insurance policy against the possibility of future power outages and to ensure that electricity demand is met during times of high load on the network.
It incentivises investment in more sustainable, low-carbon capacity for the network at minimal cost to the consumer and provides payments for existing generation assets to remain operational. It also mitigates against the unpredictability of renewable energy sources such as wind and solar generation, by providing capacity when there is insufficient output from these sources to balance the grid network, such as on days with low wind or higher demand.
Participants are required to make capacity available using either onsite generation, combined heat and power plants, demand side response or battery storage facilities to deliver power, or reduce demand when called upon by the National Grid at any point during their contracted period.
Payments are made on a £/kW/year basis for the capacity they make available to the grid. As an example, a contract secured for £1/kW/year, with a 10MW capacity provider could earn £1 x 10,000kW = £10,000 per year for making that capacity available to the grid during times of peak stress. Crucially these payments are made whether or not providers are required to deliver capacity, which makes for a reliable and guaranteed source of income.
Whether you are currently participating in the Capacity Market, a similar scheme, or are unsure of how these changes may affect your business, contact our team of experts for advice and guidance on the best course of action.