UK plans early electricity supply auction in response to shortage fears

The British government has announced that it will bring forward a scheme to encourage power companies to supply electricity at peak times by a year in a bid to avoid a potential electricity crunch.

The government is reacting to recent events whereby utilities have complained about little incentive being provided to build new power plants. As older uneconomic coal plants continue to close, shortages are feared.
Under the capacity market scheme, the owners of power plants are paid to provide electricity at short notice. Power generators who are successful in the auctions get a steady, predictable revenue stream in the form of capacity payments which encourage them to invest in new plants or keep existing ones running. They have to be able to deliver energy when it is needed, or face penalties.

The government said it had launched a consultation to conduct an early capacity auction in January 2017 for delivery in the winter of 2017/18.

It expects the auction to purchase significantly more capacity, perhaps 3 GW on top of what would otherwise have been the case, it added.

The consultation also proposes tougher penalties for companies that fail to deliver their capacity market contracts and will close on April 1, 2016.

“We need to buy more capacity, and buy it earlier, in order to manage the increased risks we face in the next decade as we transition away from coal and as older plant close,” the government said.

Government data published last week showed electricity generation in Britain fell to its lowest level in more than 20 years last year.

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