Thursday 28th of September 2017 | Posted In: Buy and Sell, Generate

Capacity Market: high costs for users, more income for generators

Winter is fast approaching, whether we are ready or not. The onset of winter means that business electricity prices will rise and this year we will also need to be prepared for the introduction of the Capacity Market (CM) and the additional costs that go with it.

What is the Capacity Market?

The CM is part of the Government campaign to ensure against electricity blackouts over the winter so that consumers continue to benefit from reliable electricity supply. It will ensure there is sufficient generation or load-management capacity in the system to cope with times of stress on the network when, for example, the wind stops blowing or there is a surge in demand.

Benefits for generators

Generators who take part in the scheme will be paid a per MW rate for the capacity they offer to the market. This capacity needs to be ‘on call’ when the National Grid needs it at any time during their contract period.

Generators that receive a renewable ‘subsidy’ such as the Feed-in Tariff cannot have a CM contract. Although there is a ‘twist’ that means all generators will be paid CM embedded benefit income this winter only; if they have the right type of PPA in place.

How will it affect users?

Depending on your contract, you might start to see the CM levy charge on your business electricity bills from October 2017, which will cover the cost of running of the CM. The charge will be based on the amount of electricity being used at a certain time. For example, businesses with half- hourly meters will be charged around £31/MWh extra for the electricity they use between 4-7pm on weekdays.

Our top tip for…

Users

If you are on a Flexible Contract we would encourage you to avoid using electricity in winter at peak times, you could save an extra 3 pence per kWh by doing so (in addition to avoiding the usual high tea-time prices).

Generators

If you do not have a ‘Capacity Market’ contract with National Grid or via an Aggregator it could be worth looking into. It's important to check the small print of your Power Purchase Agreement to see if you will be paid the Capacity Market embedded benefit this winter. Operationally, we expect most of you already focus on winter tea-time export so just carry on as normal.

If you would like more information call our team on 024 7669 8899 and ask to speak to Tim Pratt.