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Letters and Notes

Security of electricity supply: is a Capacity Market the answer?

The Energy Bill, currently on its passage through Parliament following its inclusion in the Queen’s Speech, proposes a number of important changes to the UK energy market. Although the Bill contains several elements, its focus, notwithstanding its title, is on electricity rather than on other parts of the energy market. Within this narrower purview, electricity market reform (EMR) takes centre stage. In its introduction to this part of the Bill the Department of Energy and Climate Change (DECC) explains that the reforms are being put in place to attract £110 billion of investment which it claims is needed to replace generating capacity and upgrade the grid. Two key elements of EMR are the introduction of a system of contracts to support new nuclear and other lower carbon generation (the so-called contracts for differences, CfDs) and the development of a ‘Capacity Market’.2 It is with this latter element, the Capacity Market, that this paper is concerned.

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