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Capacity Market failures ‘undermining’ UK decarbonisation efforts, report claims

CHP plants, like that installed at the Natural History Museum (pictured) can help businesses and the power sector decarbonise alike. Image: Natural History Museum.

CHP plants, like that installed at the Natural History Museum (pictured) can help businesses and the power sector decarbonise alike. Image: Natural History Museum.

A new report issued by the Association for Decentralised Energy (ADE) has said failures within the Capacity Market mechanism are undermining the UK’s efforts to decarbonise its power sector.

Released today, the ADE’s ‘Lightening the Load’ report claims that a failure within the Capacity Market to properly recognise the benefits of combined heat and power (CHP) stations has potentially added hundreds of millions of pounds to the cost of decarbonisation.

It says that if the mechanism utilised CHP plants instead of power-only gas-fuelled generators, it would save consumers between £656 and £774 million each year by 2030.

The Capacity Market mechanism, designed to plug any potential gaps within the UK’s power demand during peak times through contracts, has sourced additional capacity from a variety of generators, but gas and diesel-powered plants remain popular despite concerns over yet further payments and subsidies heading towards fossil fuel power stations.

To date, around 8GW of gas and diesel-fuelled generators have been supported by the Capacity Market.

The ADE’s report calls for three key changes to the mechanism if it is to realise the potential of CHP over other generators, specifically:

  • The continuation of carbon price support tax, and for CHP’s benefits to be “fully rewarded” under it;
  • Assurances that distributed generators are rewarded fairly for the benefits they provide to power networks;
  • Better recognition in the Capacity Market for higher-efficiency and better value power plant.

ADE director Tim Rotheray said that the report provided government with “a clear answer” as to how it could support significant carbon reduction.

“By installing CHP, thousands of businesses across the UK could help lighten the load of the cost of the energy transition while delivering much needed new capacity, helping to balance the grid and reduce network investment costs.

“To enable a more competitive energy economy, it is vital that policies including the Capacity Market, carbon taxes and network charging arrangements recognise and reward CHP’s long-term value to consumers and the environment. Enabling CHP gives real potential to make a user-led energy revolution a reality.”