Another DECC document lands on my desk. When I say ‘lands’ I should really say ‘thuds’ or ‘crashes’ – it’s a monster. ‘Electricity Market Reform: Consultation on Proposals for Implementation’ is 285 pages long, and that’s not including the various annexes which have been published at the same time. Somewhat longer than the White Paper that started all this and with a key difference: the biggest single bit by far (120 pages or so) is about the capacity market and how to make it work. It’s fair to say that it’s now looming slightly larger in the overall scheme of things than the 19 pages it occupied in the white Paper.
I record this because the capacity market is, as the documents show, relatively easy to announce as a good idea but is also extraordinarily difficult to design and implement. And even then, by the way, there is no room for interconnectors to be included in early capacity auctions, because, er, well DECC haven’t worked out how to do it yet.
The capacity market is, of course, about a simple theory: we may run short of capacity (as we have been told repeatedly in various ‘lights out’ stories in the press) so Government better calculate what the capacity margin is likely to be in four years time and then effectively have an ‘auction of promises’. We’ll give you capacity payments if you promise to supply capacity when we need it. I’ve discussed elsewhere how it may well be that we end up closing down perfectly serviceable older plants so that money can come the way of companies promising to supply through the new, shiny plants they will build instead. But that, I suppose, is by the way.
However, you might think to yourself that, complexity or not, it’s a jolly good idea to have someone thinking about capacity down the line and working out a system to ensure that we would have enough capacity because otherwise …well the lights would go out wouldn’t they? And probably all that complexity and possible gaming might still be worthwhile if they stay on.
Except, remarkably, before the White Paper came forth and announced that there would be a capacity market, there was someone thinking just those thoughts and doing something about it. Step forward, National Grid. They were running (and still are) a programme called STOR (Short Term Operating Reserve). This programme commissioned providers to supply the grid with capacity that might otherwise be unutilised on a short term basis. The aim of this was to help balance the grid at times of stress. Then National Grid, in some of its later bidding rounds, decided to look further out at the capacity needs of the market and take bids for a much longer-term capacity reserve provision. Some of these bids were offered and accepted and exist today as a sort of small scale strategic capacity reserve.
Here’s what National Grid said about its long term STOR programme: it was to ‘aid National Grid in meeting a significant future increase in our [sic] forecast operating requirements being progressively more influenced by variable renewable sources of generation.’
The long term STOR product, they continued, ’ was also specifically designed to facilitate the building of new plant that could offer an economic reserve to National Grid, but required a long term guaranteed revenue stream to secure funding’.
Remarkable similarity to the intention of the capacity market you might say, but with far less complexity. National Grid was just quietly going about gathering long term capacity guarantees on a relatively simple basis and at a reasonable cost all round. So there must have been something significantly better to stop it, because stop it did, at the end of 2010.
And the big leap forward that caused it to stop? That would be: ‘the interaction of continued long term STOR procurement and Electricity Market Reform discussions’ (National Grid’s words). In other words, because thoughts were flying around about how to develop a strategic reserve arrangement, a strategic reserve arrangement that seemed to be working well had to stop. And as we see, how prescient all that was, what with the unholy jumble of measures, counter measures, protocols and sub clauses that make up the still half-formed capacity market.
I wonder to myself how much human pain and suffering might have been avoided if National Grid had just been allowed to proceed with its long term STOR programme. You never know we might even have avoided some of the worst doomsaying about ‘blackout Britain’ because the long term capacity reserve would have been quietly accumulated in the intervening three years at no great cost and with no big fuss. Maybe someone might lead a deputation to National Grid to say ‘sorry – it’s all been a terrible mistake – can you start up long term STOR again? We promise we won’t pull the plug next time.’
Well that’s a fantasy of course, and anyway, National Grid does get something out of the new capacity market arrangements. Here’s what the implementation paper proposes (p. 150 since you ask):
‘To administer the capacity market, the Government will require annual advice on the amount of capacity needed to meet the reliability standard. Since National Grid will be the delivery body for the capacity market and it has considerable expertise in this area it makes sense for National Grid to provide this advice to government, starting in 2014.’