Industry report warns UK Government on Capacity Market Reforms: pace of design risks damaging future demand side response industry

22 August 2013

A new industry report, published today, urges Government to give more time and consideration to the design schedule for the DSR aspects of the Capacity Market or risk negatively affecting a potentially vibrant DSR market in Britain. 

The report, written by SmartGrid GB with the assistance of international law firm, Bird & Bird, represents an industry response to a key aspect of the proposals for the design of the new Capacity Market as published in the Government’s Energy Bill. 

The report's initial findings suggest there is clear industry support for the Government proposals to introduce a Capacity Market, but there is concern that the Demand Side Response (DSR) design aspects require further consultation with industry, in order for this currently immature market to develop successfully and that key assumptions should be tested further.

The report also highlights a warning from industry that the wider ambition must be to open up new sources of capacity and in particular develop innovation in DSR through a market designed for future energy requirements, rather than based on the present system.  

The report outlines five core recommendations:

  • Long-term investment in DSR is likely to benefit from a delay in the production of the design for the DSR aspects of the Capacity Market (as against the Government's proposed timetable).

  • DSR should not be seen as monolithic and there is a strong case for offering a variety of DSR product arrangements within the Capacity Market mechanism.

  • DSR should be granted a level playing field free from a one-size-fits-all approach that may favour one type of capacity.

  • The Capacity Market should have the ambition of opening up new sources of capacity, and innovative new markets, rather than relying predominantly on existing players and mechanisms.
  • A national energy vision and strategy, supported at Cabinet level, is needed to provide a clearer direction of travel, reduce investment uncertainty for industry and, crucially, to ensure all aspects of energy policy are coordinated.
Robert McNamara, Executive Director Smart Grid GB said:

“SmartGrid GB members have expressed their support for Government’s focus on proactively proposing measures, such as the Capacity Market, to address the UK’s future energy needs.  

However, there are concerns that the complexity of the Capacity Market has not been taken into account. Whilst industry agrees that work on the DSR aspects of the Capacity Market must start now, it believes an extended timeline should be adopted to ensure that the initial design of the DSR aspects of it are appropriate.”

Michael Rudd, partner, Bird & Bird said: 

"The research revealed that there is a strong awareness within industry of the consequences for our economy if the right decisions are not made in time as well as a sense of excitement at the possibilities for Britain if DSR can be developed to its full potential. We hope this initial report stimulates useful debate."

View the full report