UK proposes earlier capacity power market auction in 2017

[LONDON] The start of Britain's capacity power market will be brought forward by a year to ensure electricity supply in the coming winters and tougher action will be taken against firms that do not fulfil their supply contracts, the government said on Tuesday.

Britain may face electricity supply shortages over the next few winters as coal plants close due to weak economic conditions and investors say there is little incentive to build new power plants.

Under the government's capacity market scheme, the owners of power plants are paid to provide electricity at short notice.

Power generators who are successful in the auctions get a steady, predictable revenue stream in the form of capacity payments which encourage them to invest in new plants or keep existing ones running. They have to be able to deliver energy when it is needed, or face penalties.

The government said it had launched a consultation to conduct an early capacity auction in January 2017 for delivery in the winter of 2017/18.

The government has already held two capacity market auctions, for delivery of supply in 2018/19 and 2019/20. The next scheduled auction will be held in December this year.

The consultation also proposes tougher penalties for companies that fail to deliver their capacity market contracts and will close on April 1, 2016.

Changes to the capacity market scheme will improve the incentives for electricity companies to build more gas-fired plants, the government's Department of Energy and Climate Change (DECC) said in a statement.

"The reforms set out plans to buy more electricity capacity and buy it earlier - encouraging more investment in our energy system," DECC said.

The exact amount of capacity which needs to be procured will be determined in due course, the government said, on recommendations from system operator National Grid.

Due to environmental concerns about the inclusion of diesel generators in capacity auctions, the government also said on it expects the fuel to play a smaller role in future auctions.

Government data published last week showed electricity generation in Britain fell to its lowest level in more than 20 years last year.

REUTERS