The government has formally approved renewables’ participation in future Capacity Market auctions, and unsubsidised projects could compete as early as next year.
In a consultation response published yesterday, the Department for Business, Energy and Industrial Strategy (BEIS) confirmed it would adopt proposals to add non-dispatchable generation assets to the list of generating technology classes allowed to compete for contracts.
And those changes are to come into force in time for them to pre-qualify for the T-3 auction slated to run next year, with BEIS concluding that opening up the CM to renewables at that time would be “fair and necessary”.
Having first mooted their participation last August, BEIS launched a consultation in March intending to survey the energy sector’s thoughts on how renewables may participate in practice.
A large majority - 85% - of respondents to that consultation agreed that renewables should be allowed to participate, however a similar number stressed the importance of adopting appropriate de-rating factors for those technologies.
In order to ensure these are correct, BEIS has mandated for an Equivalent Firm Capacity methodology to be used when applying de-rating factors to renewables projects, similar to that applied to energy storage projects.
The delivery body - National Grid - will also conduct an annual review of de-rating factors attached to renewables to ensure that they closely follow technological trends and advancements.
Crucially for the renewables sector, the wording in BEIS’ response implies a tacit endorsement of not just renewables’ participation in the Capacity Market, but the role they can play in the wider energy system.
“[Renewables’] participation in the CM does not increase security of supply risks, but rather alters where and how their contribution to security of supply is accounted for.
“With the arrival of subsidy-free projects interested in bidding into the CM, and the Delivery Body’s work to effectively de-rate intermittent renewables, the impetus for this change has become clear, reinforced by the widespread support of stakeholders,” the consultation response reads.
There is, however, some question about how much renewable capacity could come forward. Any project receiving any form of subsidy payment is forbidden from participating in the CM under state aid rules, and revenues from CM contracts would only be marginal to a subsidy-free renewable project’s revenue stack.
As such, BEIS has concluded that there is unlikely to be a “material impact” on the amount of new capacity coming forward as a result of the rule change, and renewables are expected to account for just 0.5% of total capacity market costs by 2030.