Expert energy analysis and insight for UK businesses.
We talked to Fergus McAllister from our Demand Side Response (DSR) team about the Capacity Market, this year’s T-1 and T-4 results and why this scheme is a great first step for businesses who want to earn revenue from their assets.
What is Capacity Market?
The Capacity Market was introduced by the Department of Business, Energy and Industrial Strategy (BEIS) in 2014 and is run by National Grid. The aim of Capacity Market is to make sure there’s enough spare energy capacity in the system, secured through a series of auctions. The majority of capacity is secured through a T-4 auction, four years ahead of delivery and then a smaller proportion though a T-1, one year ahead of delivery.
How does it work?
Generators or flexible demand users can enter the auction and receive the clearing price in exchange for committing to be able to deliver their agreed capacity over the relevant charging year. This cost is then recovered from participants based on system usage on working days between November- February between 4-7pm
What were the results of this year’s T-1 auction?
The Capacity Market T-1 Auction cleared on the 1st February at a price of £6/kW. This is lower than we had forecast but will still yield around £4.5k per MW for customers who sign up.
What were the results of this year’s T-4 auction?
The Capacity Market T-4 for delivery in 2021/22 cleared on the 8th February at a price of £8.40/kW. This is a record low for the T-4 auctions which had previously ranged between £18- £22.50/kW and lower than we had forecast. We still need to wait for the T-1 auction results for that year to have a full view of costs but the vast majority of capacity is procured through this auction and will be lower than seen in other years.
Any other highlights?
In both auctions Coal was awarded a smaller proportion of contracts with a large percentage being awarded to Gas. In the T-1 443 MW and T-4 1,207 MW of contracts went to Demand Side Response.
What are the benefits of Capacity Market to Business Customers?
Businesses that can reduce or shift their energy use when demand is higher than available generation, with up to four hours’ notice get paid or make savings from their availability to do so. How much depends on the auction clearing price. Your supplier will get paid by the Grid and they pass those payments on to you in the form of monthly payments. Read our handy guide to how it works.
The Capacity Market offers a first step to participating in our smarter energy market. There’s little or no upfront cost and you can start small, perhaps with one asset or on one site. When you see the results you can commit more capacity. There’s little or no upfront cost to set up - you have the assets, we provide the technology. We handle the technology and automation as well as the payments to you.
It’s also important for all businesses to adapt their consumption to our changing energy mix. The Capacity Market is one of our Demand Side Response (DSR) schemes where businesses can get paid or make savings for being flexible with consumption. In turn you help the Grid stay balanced. It’s a win-win situation for the Grid and your business.
How can your businesses get involved?
EDF Energy has secured 12.8 MW capacity in this auction for the delivery year starting on the 1st October 2018 to the 30th September 2019 and is looking for customers who have the ability to be flexible with their consumption by turning down demand, or using backup generation to reduce demand from the grid.
If you’re interested in participating, please visit email: DemandSideResponse@edfenergy.com
Find out more
To find out more about DSR and how it works, watch our handy video.
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