Government’s capacity market could increase electricity bills and emissions, warn MPs

MPs on the energy select committee have warned that the government’s capacity market, which aims to ensure energy demand is met at peak times, could increase greenhouse gas emissions and electricity bills.

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The capacity market provides a regular payment for reliable forms of energy, in return for generating capacity when the system is tight. The initiative also works to decrease demand, for example by getting businesses to agree to use less power during peak times in return for subsidies. The EU approved the scheme in July.

Campaign groups criticised the capacity market, stating it does not represent value for money and poses a risk to the decarbonisation of the power sector. Energy and climate change specialist at WWF UK Jenny Banks stated that it is “throwing money at the UK’s old, dirty coal plants”.

In a letter to energy minister Matthew Hancock, Tim Yeo, chairman of energy select committee, argues that limits on contract length, restrictions on auction participation and the fact that the power to significantly cut the amount of capacity auctioned rests at ministerial level, resulting in uncertainty in the bidding process, means the initiative needs to be rethought.

Yeo continues, “If these design faults are not rectified, the system could encourage the construction of expensive new power station which are not actually required. The result of this will be to lock-in unnecessary high-carbon generation capacity instead of innovative demand-side solutions, leading to higher bills for electricity consumers and increased greenhouse gases.”

Whilst the energy select committee says it supports demand-side response measures, which they say offer a “cheaper and greener alterative” to building new generation capacity, the MPs advocate a different approach.

Yeo explains, “It would be far more cost-effective to facilitate the use of demand-side response, which are rapidly evolving technology is opening up new opportunities.”

Photo: Emilian Robert Vicol via Flickr 

Further reading:

EU approves UK’s renewable subsidy scheme and capacity market

Which? criticises renewable energy subsidy scheme

DECC plans to scrap solar farm subsidy will ‘undermine investment’

Subsidy loophole to be closed for dirty fossil fuels

E.ON’s profits fall 20% amid German renewables drive