DECC’s Capacity Market could transform renewable energy investments

Last year the UK government announced that all coal fired power plants would be closed by 2025. The Department of Energy and Climate Change (DECC) has created a Capacity Market auction to ensure the UK has sufficient power capacity for the future winters. The scheme works by paying power plant owners to provide electricity or reduce demand at short notice and particularly during periods of peak demand.

Initially two auctions were held for those able to provide power during the winters of 2018/19 and 2019/20. Now DECC have proposed a third auction for the winter of 2017/18.

The consultation document states the UK needs to buy more capacity earlier “to manage the increased risks we face in the next decade” as the nation transitions away from coal and as older plants close. DECC expects the next auction to purchase “significantly more capacity – perhaps over 3GW more”.
How can we benefit from the scheme?

The Capacity Market proposals from DECC indicate there will be opportunity to earn payment from Demand Side Reduction – methods that reduce your power consumption during peak times. However, the majority of funding will be available for energy suppliers.

With the introduction of affordable battery storage to the UK market there is an exciting new opportunity for renewable energy generators to benefit from this generous incentive.

One of the biggest drawbacks of renewable energy has been an unpredictable and intermittent supply. The vast majority of systems overcome this issue by remaining connected to the grid. The building draws power from the renewable energy system when available and the rest of the time it draws power from the grid. In some instances, excess power from the renewable energy system is also exported to the grid to earn extra revenue when it is not being used on site.

The addition of battery storage transforms this existing model by not only allowing the building owner to draw renewable power at times when it would otherwise not be available (e.g. At night for solar) but also by allowing the owner to export this power back to the grid at peak times during the winter, when it can meet the Capacity Market requirements.

In fact, batteries don’t even necessarily have to be paired with a renewable energy system. If a business can shift power consumption using battery storage it can earn payment from the Capacity Market.
What about Diesel generators?

Diesel generators offer valuable back-up and uninterrupted power supply (UPS), which is going to become essential as the risk of blackouts from our grid supply increases. Generators can also be used to qualify for the Capacity Market requirements, either as a stand alone solution or in conjunction with battery storage and onsite renewable energy generation.

There is potential to earn significant revenue from the Capacity Market scheme, however, it is anticipated that more stringent controls over emissions from generators will be implemented by DEFRA in January 2019, following concerns raised over air quality.

Virtual generators

The Capacity Market can apply to a collection of sources and technologies acting as one plant. This is called a virtual generator. Energy experts, GMI Energy, envisage multiple technologies being used in conjunction to create the optimum supply. For example, batteries will be used in conjunction with CHP (combined heat and power), solar, biogas and diesel generators.

The batteries can provide the most flexible and rapid response, day or night, biogas can meet peaks during the morning and evening, solar will fill some of the base load during the day and diesel can meet the peak requirements, whilst keeping the running time to a minimum because it is carbon intensive.