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CAS response to the BEIS Call for Evidence on Facilitating Energy Efficiency in the Electricity System

The Capacity Market arose from the UK Government’s Electricity Market Reform in 2014 and is designed to provide assurance that electricity supply can continue to meet demand where, for example, demand peaks coincide with periods of reduced renewable electricity generation.

After being selected on price through a reverse auction process, Capacity Market participants undertake to reduce stress on the electricity system, either by bringing additional generating plant online or by deploying technologies that reduce electricity demand.

To date, the Capacity Market auctions have favoured the provision of additional generating capacity, but this has often been reliant on relatively carbon-intensive forms of electricity generation which run counter to the Government’s ambitions on climate change. In July 2019, BEIS therefore consulted the energy industry and its stakeholders on how it might create new markets for energy efficiency in the electricity system such that it could become a viable alternative to the provision of additional generating capacity or electricity network reinforcement as a means of meeting peak demand.

In our response to this consultation, CAS observes that:

  • The Capacity Market may yet prove not be an appropriate route by which to encourage investment in energy efficiency in the electricity market. However, the results of the Electricity Demand Reduction pilot do not definitively show that that energy efficiency is unable to compete in a Capacity Market, and more evidence is therefore needed before firm conclusions can be made.
  • The design of Capacity Market should be revised to allow the whole system costs and benefits of a given intervention to be considered when assessing the value of competing bids. This would help to address the competitive disadvantage that electricity demand reduction technologies such as demand side response, flexibility services and energy efficiency face in the Capacity Market, where the carbon intensity of a given intervention is currently not considered.
  • Reform of the Capacity Market should seek to take a whole system view of the whole life costs of a given intervention, where competing technologies such as energy efficiency and storage or flexibility services are also seen as complementary to one another.
  • The Energy Efficient Scotland program and the development of Local Heat and Energy Efficiency Strategies presents a sizeable opportunity to leverage Capacity Market funding for energy efficiency as a form of electricity demand reduction.
Alastair Wilcox
Publication date
September 2019
Publication type
Consumer Futures Unit