Consultation outcome

Government response: reply to stakeholders on new technologies in the Capacity Market

Updated 27 November 2020

Letter to stakeholders

Dear Stakeholder,

Reply to our open letter on new technologies in the Capacity Market

On 30 September 2020 we published an open letter inviting stakeholders to share their views, by 31 October, as to whether any new generating technologies which are capable of contributing to security of supply, and which are not already identified as a Generating Technology Class (GTC), should be eligible to participate in future Capacity Market (CM) auctions (“the open letter”). In total, 14 responses were received from a variety of stakeholders, including trade associations, developers, and technical experts. A summary of responses is available in Annex A.

We are grateful to stakeholders for providing such detailed responses to the open letter. There were 2 new technologies highlighted by respondents which are not already identified as a GTC in the CM and may be capable of contributing to security of supply: tidal and geothermal. At present, both technologies appear to not be commercially viable in Great Britain (GB) without other forms of financial support from government, therefore it will be some time before they are ready to enter the CM.

We have raised the need for de-rating factors for tidal and geothermal technologies with the Electricity System Operator (ESO). They agreed to feed this into their prioritisation exercise for future development projects. Developing de-rating factors for these technologies will not only enable projects to access the CM when ready, it will also enable us to accurately account for their contributions to security of supply in our auction targets, in the event they are supported through other mechanisms. The ESO already take account of the future deployment of these technologies in their Future Energy Scenarios (FES), which includes basic assumptions about their contributions to security of supply. It may be possible to use these assumptions as a starting point for developing de-rating factors These assumptions from the FES could also be used to provide interim de-rating factors, should a tidal or geothermal project come forward sooner than expected.

Going forward, we will use this annual open letter process on new technologies to engage with stakeholders on the progress of these technologies with a view to reducing the risk that projects are ready to enter the CM before de-rating factors have been developed.

Another technology, not raised by stakeholders in response to the open letter, that we believe warrants further consideration in terms of its access to the CM and how it can be accounted for in the auction targets and the ESO’s FES, is electric vehicles connected to the grid. We are engaging with the ESO on how best to consider this technology and enable its participation in the CM.

Regarding the other technologies raised by stakeholders in response to the open letter, we are confident that these technologies can access the CM using existing GTCs. They include:

• compressed air storage, which can be entered as storage
• electrolysers and fuel cells, which can be entered as storage
• hydrogen-fired generation and carbon capture, utilisation, and storage systems, which can be entered as the relevant generation type (OCGT / CCGT / reciprocating engine)
• offshore storage, which can be entered as storage

In reply to the other comments raised by stakeholders:

• Hybrid CMUs: there remains no consensus amongst stakeholders on whether arrangements to allow Hybrid CMUs to participate in the CM are necessary. Therefore, we will not at this stage be pursuing Hybrid CMUs any further
• rewarding flexibility: the CM does not have rewarding flexibility as an objective and so these changes would not be appropriate
• de-rating improvements for solar, offshore wind and energy from waste: we have shared these comments with the ESO for consideration

Best begards,

The Electricity Security and Market Evolution Team

Annex A: Summary of responses to the open letter

Tidal

Six respondents thought that tidal energy projects (including both tidal stream and tidal range projects) should be included in the CM. Five of these six respondents provided supporting information on the performance of this technology.

Regarding tidal stream technologies, three respondents pointed out that tidal stream energy has been proven in multiple demonstration projects in GB, up to around 2MW, and has also had support from the Renewables Obligation scheme. Demonstration projects are also planned and in various stages of consent and development in Wales, Canada, France, and other countries. Views were mixed on the commercial viability of tidal stream technologies. One respondent acknowledged that whilst the costs of the tidal stream technology are falling, it is not commercially viable yet without support. Two other respondents thought that it was commercially viable now. All 3 respondents agreed that whilst tidal stream energy is intermittent, it is also highly reliable as tides can be accurately predicted ahead. It can also be coupled to storage to further increase reliability. One respondent provided data to demonstrate the consistently high availability of existing tidal streams projects. The 3 respondents thought that tidal stream technologies are sufficiently different to hydro to warrant their own class.

Regarding tidal range projects, two respondents noted that this technology has already been proven at significant scale (200MW+) in France, South Korea, and Canada. Respondents agreed that whilst tidal range energy is intermittent, it is highly reliable and there is plenty of data to support its high availability. One respondent thought that tidal range projects would need separate de-rating factors to tidal stream projects.

Geothermal

One respondent put geothermal energy forward for inclusion in the CM. They noted the potential for this technology in the UK (whilst recognising that it is constrained by geography), and the fact that it is available continuously and so would have a very high de-rating factor. There are 12GW of capacity already installed worldwide. The first demonstration project in GB is being developed in Cornwall. It is expected to be 3MW in size.

Hybrid CMUs

Three respondents discussed Hybrid CMUs in their responses. Hybrid CMUs involve the combination of more than 1 technology in a single CMU. This is currently possible in the CM, but the technologies must be entered as 2 separate CMUs.

One respondent was in favour of including Hybrid CMUs in the CM, provided the 2 technologies did not have to be on the same site, as they may be useful in regards to offshore wind farms that wish to develop storage at their onshore connection point. Another respondent had mixed views on Hybrid CMUs. They recognised the benefits that combining technologies can bring to security of supply but questioned the additional value of combining units on different sites to security of supply and therefore the need for a separate CMU class. However, they argued that if the technologies were on the same site then it is possible that there could be a greater combined contribution to security of supply and therefore a de-rating methodology which captures this additional value would need to be developed.

The final respondent was not in favour of including Hybrid CMUs in the CM. They did not believe that co-location significantly changes the contribution to security of supply for the technologies which are involved, versus having those technologies located separately. They also thought that Hybrid CMUs could create unnecessary additional complexity in the CM, given the potentially endless number of combinations available. They thought that if Hybrid CMUs were to be included, then reliable data on observed performance of Hybrid CMUs would be the most appropriate way to determine a de-rating factor. In the meantime, they considered that the existing approach of separately de-rating the component technologies should be used. They noted that the existing approach is not well advertised, and guidance could be provided on how to enter a Hybrid CMU under the current rules.

Electrolysers and fuel cells

Two respondents thought that electrolysers and fuel cells should be able to enter the CM as storage. This would potentially help to support the development of business models for electrolysers and fuel cells. No supporting information was submitted on the technical performance of electrolysers. Some information was submitted on fuel cells. There are demonstration projects of fuel cells in place in the UK, including 200kW in London. The technology is dispatchable, as well being low carbon.

Compressed air storage

One respondent thought that compressed air storage (CAES), which can currently enter the CM as storage, should be able to access a new, separate category of storage - large scale, long-duration inertial storage. They thought that pumped hydro and liquid air energy storage (LAES) should also be able to access this new category. They noted that, whilst CAES has not yet been deployed commercially at scale in GB, there is significant potential for development, there have been several independent validations of the business model and it is well proven in Germany and the USA. It has the potential to provide long-duration storage (12h+) at high levels of availability.

Carbon capture and storage

One respondent suggested that there should be a new technology class in the CM for generation which can sequester carbon – i.e. carbon capture utilisation and storage (CCUS). They discussed a project in Teesside which is expected to be delivered by 2024, sized around 200MW. They also mentioned a proven oxyfuel combustion CCUS project in the USA, sized at around 50MW. Other projects are in development worldwide. The technology is fully dispatchable.

Offshore storage

One respondent suggested that there should be a new category of technologies in the CM, called ‘offshore storage’, which would cover on-shore batteries powered by a cable from an offshore generating facility or storage facilities located offshore that are coupled to solar or wind and connected directly to the UK grid.

Flexible hydro storage

One respondent suggested the inclusion of a ‘conventional flexible hydro’ class in the CM, which would reward hydro assets that are more flexible than typical hydro can provide additional system benefits. Alternatively, they suggested that these assets should be allowed to enter the CM as storage.

Other suggestions

• photovoltaic de-rating should be reviewed as east-west configurations are now becoming prevalent and have different characteristics to traditional south and north configurations
• offshore wind de-rating should be reviewed to take floating offshore wind into account.
• the de-rating methodology for energy from waste plant should be reviewed, as the availability of this type of technology is falling compared to coal plants