CO2 limits amendments to Capacity Market
On 4 July 2019, the recast Electricity Regulation came into effect as part of the EU’s Clean Energy Package.
Importantly, the regulation has introduced new requirements for capacity mechanisms regarding CO2 emissions limits.
The new requirements
Any generation capacity that started commercial production from 4 July 2019 that emits more than 550g of CO2 emissions per kWh will not be eligible to receive payments or commitments for future payments under a capacity mechanism.
In addition, from 1 July 2025, generation capacity will be ineligible for payments and commitments for future payments under capacity mechanisms if it;
- began commercial production before 4 July 2019 and emits;
- more than 550g of CO2 emissions per kWh and
- more than 350kg CO2 of fossil fuel origin on average per year per installed kWe.
Member States of the EU will be required to adapt their capacity mechanisms to comply with the new rules by 31 December 2019.
What will be affected?
The emissions limits are expected to affect coal, diesel and potentially older inefficient gas generation. The changes will also prevent existing diesel and other generating components that do not meet emissions limits from being utilised as part of a DSR (Demand Side Response) CMU (Capacity Market Unit).
The Government will be consulting on the following points:
- Whether emissions limits for existing generation should take effect on 1 July 2025, or 1 October 2024.
- What length of agreements should be awarded in the upcoming T-3 and T-4 auctions to refurbishing fossil fuel generation that will not meet the emissions limits.
- How best to deal with false or inaccurate Fossil Fuel Emissions Declarations and the recovery of capacity payments in such cases.
The consultation will run from 22 July 2019 until 6 September 2019.
Ongoing Capacity Market issues
The Capacity Market continues to be under suspension, following the ruling from the European Court of Justice in November 2018. The investigation by the European Commission is expected to conclude by the end of the year. Until a final decision is reached, National Grid are running the scheme as normal, short of making payments, to ensure that capacity providers may be eligible for deferred payments after the standstill period.
In the short-term the Capacity Market charge will still be levied on customer’s bills, currently accounting for 0.3p/kWh, approximately 2.5% of a bill. This means that consumers will likely see little immediate change.
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