Capacity markets and the EU target model – a Great Britain case study

G. S. Hawker; K. R. W. Bell; S. Gill

Capacity markets and the EU target model – a Great Britain case study

G. S. Hawker^*, K. R. W. Bell, S. Gill

^*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceeding › Conference contribution book

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Abstract

The growth of interconnection between national electricity markets is key to the development and competitive efficiency of the Single EU Market for Electricity. However, in parallel with the development of the Single Market, a growing number of EU Member States have implemented – or are in the process of developing – national Capacity Mechanisms in order to ensure future security of supply, which may distort the cross-border trade of energy across interconnectors and reduce total welfare. In particular, the Electricity Market Reform (EMR) legislative package recently brought in by the UK government introduced a Capacity Market (in which two rounds of auctions have taken place to date) for the provision of generation capacity from 2018. In order to ensure that such national markets do not distort the wider energy market, it is important that the role of cross-border capacity, and the availability of interconnector capacity, is correctly consolidated into such mechanisms. In the first annual GB auction the net contribution of interconnection was included on a conservative basis informed by historical data, and while interconnectors have since been permitted to bid into the Capacity Market at a de-rated value (in a similar manner to domestic generation), generators in other markets are still not able to explicitly participate. This may continue to introduce market distortions and adversely impact both short-term dispatch and long-term investment decisions in both the GB and neighbouring markets. A number of routes are available to resolve this through a mechanism to permit cross-border participation of generators, but this requires resolution of a number of complicating factors, not least a means for properly allocating transmission capacity without introducing further distortions to the energy market. Alternative solutions could be enacted at an EU-level, such as through the alignment of Capacity Mechanisms to a common model, or the introduction of an EU-wide single Capacity Mechanism, but the current regulatory focus appears to remain on resolution of such issues at a national level.

Original language	English
Title of host publication	e-CIGRÉ
Place of Publication	Paris
Pages	1-15
Number of pages	15
Publication status	Published - 21 Aug 2016
Event	CIGRE Paris Session 2016 - France, Paris , France Duration: 21 Aug 2016 → 26 Aug 2016

Conference

Conference	CIGRE Paris Session 2016
Country/Territory	France
City	Paris
Period	21/08/16 → 26/08/16

Funding

This paper was supported by the UK Energy Research Centre (UKERC) Phase 3, EPSRC Grant No. EP/L024756/1. [1] A. Jacottet, “Cross-border electricity interconnections for a well-functioning EU Internal Electricity Market”, Oxford Energy Comment, June 2012 [2] European Commission, “Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC”, July 2009 [3] European Commission, “Energy Union Package: A framework strategy for a resilient energy union with a forward-looking climate change policy”, February 2015 [4] L. Hancher, A. de Houtecloque and M. Sadowska, “Capacity Mechanisms in EU Energy Markets”, Oxford University Press, 2015 [5] European Commission, “State Aid: sector inquiry into capacity mechanisms – frequently asked questions”, April 2015 [6] D.Newbury and M. Grubb, “The Final Hurdle? Security of supply, the capacity mechanism and the role of interconnectors”, University of Cambridge Energy Policy Research Group Working Paper 1412, September 2012 [7] Linklaters LLP, “Capacity mechanisms: Reigniting Europe’s energy markets”, 2014 [8] National Grid, “Winter Outlook Report”, Available at http://www2.nationalgrid.com/UK/Industry-information/Future-of-Energy/FES/Winter-Outlook/ [9] Department of Energy and Climate Change, “Electricity Market Reform: Capacity Market – Detailed Design Proposals“, June 2013 [10] European Commission, “Guidelines on State aid for environmental protection and energy”, June 2014 [11] European Commission, “Single Market Progress Report, Country Profiles: United Kingdom“, 2014 [12] European Commission Press Release, “State aid: Commission authorises UK Capacity Market electricity generation scheme”, 23rd July 2014 [13] E3G, “Keeping coal alive and kicking: Hidden subsidies and preferential treatment in the UK Capacity Market”, Briefing Paper, July 2014. [14] European Commission, 2009a. Regulation EC no. 714/2009 of the European Parliament and of the Council of 13 July 2009 on Conditions for Access to the Network for Cross-border Exchanges in Electricity and Repealing Regulation EC no. 1228/2003. [15] Ofgem, “Electricity Interconnectors”, available online at https://www.ofgem.gov.uk/electricity/transmission-networks/electricity-interconnectors [16] Department of Energy and Climate Change, “More interconnection: improving energy security and lowering bills », December 2013 [17] UK Government, “The Electricity Capacity Regulations 2014” [18] National Grid, “Keeping the lights on”, July 2014, available online at: http://www.nationalgridconnecting.com/keeping-the-lights-on/ [19] UK Government, “The Electricity Capacity (Amending) Regulations 2015” [20] Department of Energy and Climate Change, “Electricity Market Reform: Announcement of de-rating methodology for interconnectors in the Capacity Market”, February 2015 [21] National Grid, “Electricity Capacity Report 2015”, June 2015 [22] Department of Energy and Climate Change, “Confirmation of capacity auction parameters”, June 2015 [23] National Grid, “Provisional Auction Results, T-4 Capacity Market Auction 2014”, December 2014 [24] Charles River Associates, “The 2015 GB Capacity Market Auction: Drivers and Strategies”, September 2015

Keywords

capacity market
network adequacy
generation adequacy
interconnectors
cross - border trade
electricity markets

Access to Document

Hawker-etal-CIGRE2016-capacity-markets-EU-target-model-Great-Britain-case-studyAccepted author manuscript, 876 KB

UK Energy Research Centre (UKERC) phase 3: theme 3 - Energy systems at multiple scales
Bell, K. (Principal Investigator), Xu, L. (Co-investigator), Frame, D. (Researcher), Hawker, G. (Researcher) & MacIver, C. (Researcher)
EPSRC (Engineering and Physical Sciences Research Council)
1/05/14 → 30/04/19
Project: Research

Cite this

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abstract = "The growth of interconnection between national electricity markets is key to the development and competitive efficiency of the Single EU Market for Electricity. However, in parallel with the development of the Single Market, a growing number of EU Member States have implemented – or are in the process of developing – national Capacity Mechanisms in order to ensure future security of supply, which may distort the cross-border trade of energy across interconnectors and reduce total welfare. In particular, the Electricity Market Reform (EMR) legislative package recently brought in by the UK government introduced a Capacity Market (in which two rounds of auctions have taken place to date) for the provision of generation capacity from 2018. In order to ensure that such national markets do not distort the wider energy market, it is important that the role of cross-border capacity, and the availability of interconnector capacity, is correctly consolidated into such mechanisms. In the first annual GB auction the net contribution of interconnection was included on a conservative basis informed by historical data, and while interconnectors have since been permitted to bid into the Capacity Market at a de-rated value (in a similar manner to domestic generation), generators in other markets are still not able to explicitly participate. This may continue to introduce market distortions and adversely impact both short-term dispatch and long-term investment decisions in both the GB and neighbouring markets. A number of routes are available to resolve this through a mechanism to permit cross-border participation of generators, but this requires resolution of a number of complicating factors, not least a means for properly allocating transmission capacity without introducing further distortions to the energy market. Alternative solutions could be enacted at an EU-level, such as through the alignment of Capacity Mechanisms to a common model, or the introduction of an EU-wide single Capacity Mechanism, but the current regulatory focus appears to remain on resolution of such issues at a national level.",

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ER -

Capacity markets and the EU target model – a Great Britain case study

Abstract

Conference

Funding

Keywords

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Projects

UK Energy Research Centre (UKERC) phase 3: theme 3 - Energy systems at multiple scales

Cite this