The shadow energy secretary Lisa Nandy has come out in criticism of the government’s Capacity Market scheme after a report showed the costs that it could force on households across the UK.
The Capacity Market Auction is a government scheme designed to ensure a secure supply of electricity by guaranteeing generators a certain amount of money in return for the promise that a certain amount of power will be generated.
Energy companies bid against each other at the annual auctions, offering the lowest price that they can in order to generate the requisite amount of electricity, to be delivered four years after each auction takes place.
In order to work out how much energy (or capacity) is needed, National Grid conduct research and report their findings, along with a recommendation, to the Department for Energy and Climate Change, who then have the final say.
Some companies will have the infrastructure ready at the time of bidding, and others will include the costs of building the necessary generators in their bids.
This point has been cause for contention since a large part of the drive behind the auction is to help grow a portfolio of, ideally sustainable, new energy generators in order to promote energy security.
In fact, in the first auction in 2014, “just over 5% of contracts went to new capacity and just 0.35% to demand response providers, as can be seen in the graph below”.
Critics point to money that is given to plants and generators that would still be active without the subsidies as poorly invested, and that the large amount going to fossil fuel plants does not help our decarbonisation efforts.
The scheme has now drawn further criticism after a government report released last week showed that the costs of the auction could end up adding £38 to every households annual energy bills by 2018.
Labour’s Lisa Nandy criticised the government both for ‘burying’ the news revealed in the report, as well as for pushing forward the scheme more generally, which she described as “a massive waste of money”.
She said: “The Tories are trying to bury this bad news. Every family’s energy bill is to shoot up to pay for these grow new hand outs to the big energy companies.
“It has been so badly designed, it isn’t getting new power stations built, but instead is just lining the pockets of the big six and investors in highly polluting diesel generators.”
The DECC responded to allegations of financial inefficacy however, saying that the £38 figure is somewhat misleading, given how much energy costs are due to increase anyway over the next few years as power stations close up and down the country.
A spokesperson said: “Our top priority is ensuring that families and businesses have a secure, affordable, clean energy supply, which they can rely on now and into the future.
“If only the announced plant closures occur, we estimate the net impact on bills to be between £10 and £21, depending on the clearing price in the auction.”
However, while the £38 gross figure may be misleading to quote, criticism regarding the broader issues with the Capacity Market still fires from various angles.
Exeter University’s professor Catherine Mitchell said: “The capacity market system inherently favours fossil fuel generation, damaging the environment while delaying the widespread rollout of a flexible grid based on renewables, demand management, storage, interconnection and more efficient practises, as the national infrastructure commission and Energy UK have recently recommended.”
