The Electricity Capacity Regulations 2014

Overview

These Regulations establish a Capacity Market which is designed to ensure that sufficient electrical capacity is available to ensure security of electricity supply. Through these Regulations, the Capacity Market will enable certain, regular payments to be made to capacity providers, in return for which those providers must be available and produce electricity (or reduce demand for electricity) when asked to do so. As such, these Regulations contain provisions about:

• The Secretary of State’s role, such as how and when the Secretary of State will determine whether to run a capacity auction, as well as providing for the Capacity Market to be implemented and administered by a combination of the Secretary of State, the Gas and Electricity Markets Authority, a Delivery Body (National Grid Electricity Transmission plc) and a Settlement Body (to which position the Secretary of State intends to appoint the Electricity Settlements Company ltd).
• The process for determining whether a capacity auction is to be held and the auction parameters for a capacity auction.
• Determining eligibility and holding capacity auctions, issuing capacity agreements, establishing and maintaining a register of capacity agreements and terminating a capacity agreement.
• Payment and settlement provisions.
• Dispute resolution and appeals.

For context, the Capacity Market consists of six operational stages:

• Amount of capacity: where the Secretary of State will decide the amount of capacity for which capacity agreements are to be auctioned. This will be the total amount of capacity needed, with some deductions for capacity which will be on the system, but which does not participate in the Capacity Market.
• Eligibility and prequalification: where applicants eligible to offer capacity participate in a prequalification process run by National Grid.
• Auction: where applicants who have successfully prequalified enter a competitive central auction also run by National Grid, four years (with a further auction one year) ahead of delivery. Successful bidders are awarded capacity agreements, which provide for a steady payment for capacity in return for a commitment to deliver energy when required in the deliver year(s), or face a penalty.
• Secondary market: where, between auction and delivery and in the delivery year(s), participants adjust their position through either financial or physical secondary trading, e.g. to take on a greater or lesser obligation, or if a new build that is facing delays to commissioning can find alternative capacity to meet the temporary shortfall.
• Delivery: capacity providers receive payment if they provide capacity in the delivery year in periods of system stress. Financial penalties may apply if they do not deliver the amount of energy set out in their capacity agreement.
• Payment: the costs of capacity agreements will be met by suppliers. The payments will flow from suppliers, via the settlement body, to providers of capacity. Where penalties are applied to capacity providers, the funds will flow from them, via the settlement body, to suppliers.