Capacity Market scheme accused of making consumers pay conflicting subsidies for highly polluting plants.
A £2.8bn government scheme funded by energy bill payers which aims to keep the lights on in Britain has been condemned as wasteful, expensive and “unfit for purpose” in a damning report.
The claims from the Institute of Public Policy Research (IPPR) comes on the day that one of the UK’s biggest coal-fired power stations, Ferrybridge, formally closes, with several others threatening to follow.
There was also a new warning from a leading academic and adviser to energy regulator Ofgem that Britain’s electricity supply is facing “crunch time” this coming winter.
Under the Capacity Market scheme, more than £370m alone has been paid to coal plants that are simultaneously being hit by a higher carbon price floor, ensuring “consumers are hit by a double whammy, paying for two subsidies,” warns the IPPR.
“The government rightly wants to secure the country’s power supply. But its primary mechanism for doing so is failing to meet any of the government’s own objectives. It is absurd that consumers are paying for subsidies to the most polluting forms of generation such as diesel and coal while in a separate policy also paying to discourage them,” said Byron Orme, IPPR research fellow and author of the report.
Orme believes a revamped scheme should not support the most polluting plants such as diesel generators, provide proper support for demand reduction schemes and halt support for existing nuclear reactors. “The Capacity Market needs fundamental reform if the lights are to be kept on at reasonable cost to households and businesses.”
The government has itself been changing the Capacity Market gradually in new efforts to incentivise energy companies to keep their electricity generation levels up amid the growing number of plant closures.
It said it was doing enough to ensure the lights were kept on. “We are clear that providing a secure supply of affordable energy for our families and businesses is non-negotiable,” said a spokesperson for the Department of Energy and Climate Change.
“The closure of Ferrybridge was announced last May, sometime before reforms to the Capacity Market were set out. These reforms will ensure that the Capacity Market remains fit for the purpose of securing our energy supply by bringing forward new power stations as older, less efficient, plants close.”
National Grid, which has the job of balancing power demand and supply, said it was continuing to monitor the situation with regard to next winter.
Power company SSE confirmed the closure of the Ferrybridge coal-fired power station in Yorkshire but said that its Fiddlers Ferry plant in Cheshire might apply for subsidies on offer for 2016-17.
Last week the Longannet coal-fired power plant in Scotland ended production while the Rugeley facility in Staffordshire, operated by Engie of France, is scheduled to switch off this summer.
Michael Grubb, professor of energy and climate change policy at University College London and an adviser to Ofgem, said he believed the demand-supply margin was still very close.
“With the first backup under the capacity mechanism not in place until next year, this winter coming will be the crunch time for the UK’s electricity transition,” he said. “Yet despite the tight margins, extreme weather is still far more likely to cause any household disconnections than insufficient generating capacity.”
Paul Massara, former chief executive of the major energy supplier RWE npower, said that the closure of coal-fired power stations might have drastically narrowed the gap between demand and supply, but that they needed to go nonetheless.
“The phase-out of coal-fired power stations in the UK is a good thing, for a number of reasons. Coal hasn’t been paying its way for some time now, notably in terms of its impact on air pollution and the climate. The targets we face for keeping levels of global warming within ‘safe’ levels also mean that coal, as the most polluting of all fossil fuels, has to go as quickly as possible, not just here but across Europe,” he said.
Doug Parr, chief scientist for Greenpeace UK, said the ministers needed a rethink. “The UK government has taken the right approach by announcing a coal phase-out, but they forgot about the other half of the job. What Britain badly needs are clear, robust policies to drive more investment in clean energy and power-saving technologies.
“What we have instead is a random collection of pet projects, like the Hinkley nuclear reactor and fracking, that are going nowhere, with highly polluting diesel farms thrown in to plug the gap.”