The Capacity Market - investing in a future of dirty diesel generation

The Capacity Market - investing in a future of dirty diesel generation

The capacity market scheme was designed to facilitate the flow of money to both existing generation sources, as well as encourage the building of new generation. Tempus have been analysing the EMR Delivery body's public data to put together a breakdown of their figures.  

Allowing generation that didn’t yet exist was to encourage investment in building new infrastructure. Our findings dig into the breakdown of these new build generation by fuel type.  

Breakdown of new build generation contracts awarded 

  Fig 1

Fig 1

The results in our first chart show that a major beneficiary of new build investment was inefficient, polluting reciprocating engines and in the final auction, these reciprocating engines (red) won more new build funding than any other generation type. 

While 60% of all reciprocating engine contracts in the 2018 auction were for 15-year contracts, providers of DSR were not allowed to bid-in for these long term contracts. This is one of the reasons that DSR was under represented in the capacity market. 

This commitment to longer contracts allowed for capital to be raised to build new small-scale gas and diesel generators. If the same commitment had been extended to DSR then businesses models built around the capacity market would have been able to compete on a level playing field with fossil fuels. 

Battery storage (fig 1 green) failed to win any substantial investment, despite being able to secure the grid in a much cleaner manner. We have always argued that this is because the rules of the market have preferred fossil fuel generation, conveying resistance to the innovation which is necessary to support our future, greener grid.  

Comparing the new investment in batteries to small scale engines.w 

  Fig 2 - Reciprocating engines vs battery storage contracts awarded – capacity market lifetime

Fig 2 - Reciprocating engines vs battery storage contracts awarded – capacity market lifetime

As we see in our second chart, total battery capacity awarded was less than the capacity offered by existing small-scale gas and diesel generators, and less than 1/8th of that offered by new build small-scale gas and diesel generators. Investment in new build infrastructure should be focused on the technology which can help stabilise the grid without polluting our communities. 

Tempus expects battery storage to be an integral part of a stable grid, and we recognise that the suspension of the capacity market payments leads to difficulties for the companies building this capacity. However, we believe that this data shows how innovative and low-carbon technologies were marginalised under the capacity market scheme. If we want to decarbonise, we should be investing in clean storage technology while rewarding consumers for shifting demand away from peak times.

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