Consultation outcome

Open letter on new technologies in the Capacity Market, 2024: government response

Updated 29 November 2024

On 30 September 2024, the government published its annual open letter inviting views by 1 November, as to whether any new generating technologies which could contribute 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’). 

We received 6 responses from stakeholders. We are grateful to these stakeholders for taking the time to provide detailed responses, including academic research and technical insights from those in industry working with these technologies first-hand.

As in previous years, several stakeholders emphasised the potential of smart charging and Vehicle-to-Everything (V2X) technology, which enables electric vehicles (EVs) to discharge energy stored within the vehicle’s battery for use elsewhere. With increasing numbers of EVs available and the need for grid flexibility highlighted by NESO, V2X continues to be a promising technology. Challenges highlighted by stakeholders for V2X include the need for grid infrastructure upgrades to handle bidirectional energy flows, standardisation across EV brands for charging/discharging, the cost of installing V2G chargers versus conventional charging and developing robust business models to incentivise participation. Stakeholders noted the support government has provided in developing V2X, including funding for pilot projects encouraging V2X uptake through its V2X Innovation Programme.

Stakeholders also highlighted their views on how a dedicated V2X Generating Technology Class and technology-specific de-rating factor could help to encourage V2X’s participation in the CM. Stakeholders highlighted that an uptick in EV participation in the CM is expected in coming years through aggregated portfolios. This is consequent to expectations of an increased number of V2X-capable vehicles and devices coming to market.    

Three stakeholders highlighted Offshore Hybrid Assets (OHAs), combining Offshore Wind Farms (OWFs) with Multi-purpose Interconnectors (MPIs), to enhance the efficiency and reliability of power supply. OHAs improve grid flexibility by allowing energy to be redirected when demand fluctuates, thus lowering curtailment of wind power. For OHAs to integrate effectively into the CM, stakeholders recommend enhanced coordination with Distribution Network Operators (DNOs) and infrastructure investment to support offshore substations and other advanced grid improvements.

Smart transformers, mentioned by two stakeholders, regulate voltage on the low-voltage (LV) network and reduce demand by maintaining voltage at minimum statutory levels. Stakeholders noted that whilst these transformers offer demand reduction benefits without requiring a fuel source, deployment is limited by the lack of comprehensive LV monitoring. Full-scale implementation was seen to face barriers in terms of infrastructure investment and ongoing coordination required with local DNOs.

Stakeholders also highlighted Hydrogen-to-Power (H2P) as a technology of potential interest for the CM. H2P systems could replace higher-emission peaking plants, contributing significantly to net-zero goals. However, stakeholders noted that H2P remains at a lower level of commercial maturity, with ongoing challenges sourcing green hydrogen at competitive prices and infrastructure challenges such as hydrogen storage.

One stakeholder proposed a “Flexible Nuclear” model, utilising Small Modular Reactors (SMRs) to provide flexible nuclear power, rather than baseload-only, by employing cogeneration for heat and hydrogen production. The approach discussed would allow nuclear reactors to adjust output according to demand, potentially reducing the need for fossil-fuel-based peaking plants. Challenges identified were high costs, regulatory adjustments, and extensive infrastructure requirements in order to fully realise the potential of such projects.

Finally, the potential of Demand Side Response (DSR) more broadly was highlighted, with several stakeholders noting its ability to reduce peak demand through aggregated consumer adjustments. Whilst DSR participation has grown in recent years, stakeholders indicated that operational challenges, such as data assurance for accurate de-rating and barriers to entry for smaller participants, remain key issues for broader adoption.

We appreciate the input from stakeholders on these emerging technologies and their potential roles within the Capacity Market. The insights provided will aid our continuous assessment of how these technologies can contribute to securing a low-carbon, resilient energy system. We will continue to evaluate the opportunities and challenges of these emerging technologies with the National Electricity System Operator (NESO) and assess how best to address concerns raised, such as regulatory requirements and technical feasibility. We remain committed to ongoing engagement with stakeholders to ensure the CM evolves to incorporate viable, innovative technologies aligned with the UK’s energy security and clean power objectives.

We will use this annual open letter process to continue our engagement with stakeholders on the progress of participation of new generating technologies. The next annual letter will be published in Autumn 2025, and we will welcome any further responses towards new generating technologies in the Capacity Market to this letter.

Capacity Market Team, Department for Energy Security and Net Zero