UK: Review Of Capacity Market And Emissions Performance Standard

Last Updated: 17 September 2018
Article by Clare Hatcher

How well have the Capacity Market (CM) and Emissions Performance Standard been working and are there any opportunities for improvement? Clare Hatcher, a partner in Clyde & Co LLP's projects and energy team, says the questions raised by the government's report reflect many of the concerns raised by the energy industry.

Original news

The Department for Business, Energy & Industrial Strategy is seeking views and evidence on how well the CM and Emissions Performance Standard has been working and any opportunities for improvement. The consultation is a review, as it has been five years since the Energy Act 2013 (EA 2013), which introduced the policies, was passed. This consultation closes on 1 October 2018.

What is the background to this review?

Under EA 2013, which implemented the policy objectives of the government's Electricity Market Reform (EMR), there is a statutory requirement to review the measures that EA 2013 introduced after five years. This five-year review is due to commence in 2019. It also provides an opportunity to fulfil the UK's commitment to the European Commission to review how the CM is working in practice, which was a condition of it being granted a ten-year State aid approval. Ahead of this review, on 8 August 2018 the government published a call for evidence: Capacity Market and Emissions Performance Standard review: call for evidence (referred to in this News Analysis as the 'report'.

The CM was set up to encourage the investment in generation capacity necessary to maintain security of supply at a time when significant plant closures were anticipated. It does this by providing payments to capacity providers who guarantee to provide capacity when the grid is under stress. Some existing power generators, as well as new generators, interconnectors and demand side response (DSR) providers, are eligible to bid in auctions for capacity contracts. Where a successful bidder holds a capacity contract and fails to deliver electricity - or reduce demand in the case of DSR - when required to do so, they incur financial penalties.

The government states in its report that it believes the existing design has been broadly successful in meeting its objectives. It has secured the required capacity at an affordable price with a high degree of market liquidity. At the same time, the government recognises that the energy market is undergoing a rapid transformation with new technologies beginning to compete effectively with traditional generation assets and so the government wants to consider how the CM can better support these new technologies. The report specifically identifies the need to provide better support for DSR and enhance participation of aggregators and other smart system services.

The Emissions Performance Standard (EPS) was also introduced by EA 2013. Its objective is to ensure that new fossil fuel fired electricity generation contributes to the security of supply in a way that is consistent with the UK's decarbonisation objectives. The EPS places a limit on the carbon dioxide emissions that can be produced by a new fossil fuel generation plant.

The report states that the government believes that the EPS is achieving its objective as all generation plants that have been constructed since its introduction have complied with the EPS.

What questions are raised by the report?

The report has identified two priority issues that need to be addressed. The first is whether it is possible to enable subsidy-free renewables to participate in the CM. The design of the CM was intended to be technology neutral so that existing and new build capacity DSR and interconnectors could all compete. However, most renewables (including wind and solar) are not eligible to participate. Currently only biomass and hydro can participate. This is because historically, renewable technologies benefited from low carbon support schemes but, as the cost of wind and solar have fallen quickly, some onshore wind and solar projects are becoming viable without subsidy. Hybrid sites (sites with multiple technologies) and aggregated sites (asset portfolios which are not geographically located together) have also not been eligible although they can offer real advantages in terms of a security of supply. The review recognises that to enable participation in the CM by subsidy free renewables, it is necessary to look at how to derate these technologies and whether the existing penalty regime sufficiently addresses the risks of non-dispatchable technology.

The second priority issue is the role of interconnectors in the CM and cross-border participation. Although the amount of interconnection capacity with CM contracts has increased and injected competition in CM auctions, their contribution to security of supply in the future may diminish as they are reliant on the same limited pool of spare capacity in interconnected countries and a number of these countries are introducing their own capacity schemes. As a result, the government wants to consider whether there should be changes to the derating methodology used for interconnectors to ensure that they are not over compensated relative to their real contribution to security of supply.

The report also notes that there are issues around protecting against delivery risks and tightening the incentives on those with CM contracts to ensure they honour them. The penalties for non¬delivery are capped at a relatively low level of 100% of the capacity providers' annual capacity payment. It has been suggested that the penalty regime should be strengthened and reflect the value of the lost load during periods of scarcity.

What are the next stages?

The government's call for evidence is the first stage of the government's CM review and responses must be submitted by 1 October 2018. The conclusions of the CM review must be included in a report to be laid before Parliament by summer 2019. The government wishes to introduce any necessary amendments to the CM Regulations and CM Rules so that they are ready for the auctions in winter 2019/20.

Do you have any comments on omissions or surprises for the market in what the report has raised?

The questions raised by the report reflect many of the concerns raised by the energy industry which shares the government's view that the CM is fundamentally the right mechanism to deliver security of supply but believes that it is important to look at the interaction between the CM and ancillary services to ensure that the design is fit for purpose and delivers a competitive outcome based on a level playing field.

Clare Hatcher is a recognised expert in energy and renewables and received a client choice award in the energy and natural resources sector in 2016.

Interviewed by Kate Beaumont.

Originally published by LexisNexis

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions