This year marks ten years of the Low Carbon Contracts Company and the Government’s Capacity Market, which is administered by the Electricity Settlements Company (LCCC’s sister company). Throughout that time, seventeen auctions have been delivered, securing capacity one and four years ahead to ensure security of electricity supply in Great Britain. Let’s explore a decade of the scheme's achievements and evolution.
What is our role in the Capacity Market?
We are the Settlement Body for the scheme and amongst other responsibilities, complete checks on set-ups and data requirements, ensure the accurate settlement of System Stress Events (when supply cannot meet demand on the system) and are trusted advisors to DESNZ and Ofgem.
What has the Capacity Market achieved?
Through competitive auctions, the Capacity Market has successfully incentivised the participation of new and existing technology types in the scheme. This has reliably bolstered security of supply despite market pressures, by ensuring capacity is online and available to the grid when needed. As a result, there has not been an event where GB’s demand has outstripped its supply.
How has the Capacity Market changed?
The Capacity Market is technology-neutral and through its evolution, the participants in the scheme have diversified significantly. Low carbon participation has increased and the recent T-1 and T-4 auctions evidenced this. We also saw a decline in the number of fossil fuel based technologies being awarded agreements. In our view, it is positive to see more low carbon technologies entering the market and a sign of a cleaner energy mix.
However, such changes in the scheme have presented challenges, for example, managing many smaller Capacity Market Units is different to managing fewer, larger Capacity Market Units. We are proud to have managed these with DESNZ, Ofgem and NESO to help ensure security of supply in Great Britain
As shown in the graphs below, Demand Side Response and storage are now competing in the Capacity Market in a meaningful way and predictions show this is set to increase in the future.
There has been and continues to be an increase in battery storage participation in the Capacity Market between 2021 and 2028.
We expect to see a significant increase in Demand Side Response (DSR) components participating in the Capacity Market in the future.
With the increase in Capacity Market Participants, we added a new layer of automation to support delivery and visibility of performance. As part of this, we have introduced initiatives to streamline processes and reduce the burden and barriers to entry by:
- Developing a new Satisfactory Performance Day and Extended Performance report— during each delivery year, every Capacity Provider must demonstrate compliance with the capacity obligation, as outlined in their Agreement, on three separate dates. Working closely with the Delivery Body, we've successfully automated and streamlined this process, ensuring efficiency and accuracy in reporting
- Data utilisation – we have established a more efficient process, using our data rather than requesting data from Capacity Providers. Through this, we can efficiently calculate any penalties that may be due in the case of a System Stress Event
- Metering Aggregation and missing metered data – to ensure accurate setup we have been monitoring data flows for the current delivery year and have implemented an email alert system and payment suspension mechanism when missing metered data flow issues exist
- Mock Stress Event calculations – using data held by NESO we have replicated Mock Stress Event calculations. We now provide reports to Capacity Providers advising of their Capacity Market Units’ (CMU) performance, had a Mock Stress Event occurred. This enables Capacity Providers to assess their own CMU’s performance and resolve issues. We currently provide this report twice per delivery year.
The Capacity Market has been instrumental in ensuring energy security over the past decade. We are proud of our role and will continue to work with Government, Capacity Providers and other stakeholders to ensure that the Capacity Market remains fit for purpose as we transition towards Net Zero.
Click here for more info on our role