Evaluation of the Capacity Market Scheme - Final Evaluation Report - Technopolis Ltd.

A final benefit of the Capacity Market is that the scheme reduces volatility and mitigates risks; therefore, the removal of the Capacity Market could lead to increased uncertainty on the ability to maintain security of supply at least cost to consumers. [...] Overview of the Capacity Market The Capacity Market (CM)3 was launched in 2014 as part of the government’s policy of Electricity Market Reform (EMR) through four pieces of legislation: the Energy Act 2013, the Electricity Capacity Regulations 2014, the Electricity Capacity (Supplier Payment etc.) Regulations 2014 and the Capacity Market Rules (“The Act, the Regulations, and the Rules”). [...] Overview of the Capacity Market Evaluation The evaluation aims to: • Determine whether and how the Capacity Market has historically met its objectives • Provide evidence on the potential need for future market intervention to ensure security of supply and how it compares to the current Capacity Market design • Provide learning about how the individual components of the Capacity Market could be inc. [...] Low clearing prices may signal the scheme’s cost effectiveness when compared to the value of lost load51, but another perspective is that the real value of the Capacity Market is observed in the certainty and assurances of the security of supply. [...] “In the absence of the Capacity Market - it is not to say we would walk away from the market - but we would be less likely to invest in the UK” – Capacity Market investor Value of Capacity Market contracts to investors The value of Capacity Market revenues to investors is purely in their availability, and Capacity Market revenues do not typically form the bulk of an asset’s revenue stream.