DECC Claim They Are “Driving Down Electricity Costs”!
By Paul Homewood
DECC have now reported on the results of the consultation it held into the operation of the capacity market it began in March:
The Government is taking action to ensure the UK’s long-term energy security as it builds a system of energy infrastructure fit for the 21st century.
Following a consultation launched in March, a package of reforms to the Capacity Market has been confirmed. The Capacity Market is the UK’s principal tool to ensure we have secure supplies of electricity.
It is driving down costs and securing electricity at the lowest possible price for bill-payers. It gives market participants a payment to ensure there is enough electricity available during peak times in the winter.
Responses to the March consultation reflected clear support from industry and investors for three key reforms which will ensure the Capacity Market continues to deliver energy security:
- Buying more electricity and buying it earlier;
- Toughening sanctions for firms which go back on their Capacity Market agreements;
- Bringing forward the Capacity Market by one year to the winter of 2017/2018.
In light of these responses, the Government has set out its intention to hold an auction this winter for delivery in 2017/2018 and will proceed with its other core proposals in the consultation, giving both bill-payers and the energy industry more certainty for the coming winters.
This will better safeguard our energy security so we can protect families and businesses from spikes in energy costs in the future.
There are no surprises. They have been concerned for some time about the rapid closure of coal capacity, and an auction for 2017/18 was always on the cards. Whilst the increase in capacity that they are looking to buy, expected to be around 3GW, will help to push up the auction price (which is paid to all successful applicants), it is not clear whether this will incentivise the major expansion in CCGT that is needed.
But what is notable is this comment:
It is driving down costs and securing electricity at the lowest possible price for bill-payers.
This is all very strange, because, according to the Office for Budget Responsibility, the Capacity Market will be costing us all £1.1 billion a year by 2020.
And, of course, there would be no need at all for the Capacity Market, but for DECC’s own policies pushing intermittent renewables, which will be adding an extra £10.9 billion annually by 2020.