The Delivery Parties and EMR Parties involved in the delivery of Electricity Market Reform are outlined below. Further details about the Contracts for Difference (CfD) and Capacity Market schemes is also included and where to locate some additional information.
BEIS sets the policy framework, provides sponsorship, and leads on design and legislative action.
The CfD scheme is the government’s main mechanism for supporting low-carbon electricity generation. CfDs incentivise investment in renewable energy by providing developers of projects with high upfront costs and long lifetimes with direct protection from volatile wholesale prices, and they protect consumers from paying increased support costs when electricity prices are high.
Renewable generators located in the UK that meet the eligibility requirements can apply for a CfD by submitting what is a form of ‘sealed bid’. There have been three Auctions, or allocation rounds, to date, which have seen a range of different renewable technologies competing directly against each other for a contract. Further information on CfDs and Allocation Round 4 is available on the BEIS website.
The Capacity Market ensures security of electricity supply by providing a payment for reliable sources of capacity, alongside their electricity revenues, to ensure they deliver energy when needed. This will encourage the investment needed to replace older power stations and provide backup for more intermittent and inflexible low carbon generation sources.
The Capacity Market also supports the development of more active demand management in the electricity market. Further information on Capacity Market on the BEIS website.
Ofgem was given key roles within EMR including:
The Regulations provide the overarching policy and design, including the powers the Secretary of State (SoS) will hold in overseeing the Capacity Market. The Rules have been made by the SoS and provide the practical detail on how the Capacity Market will operate under the Regulations. The Rules cover:
- Details on the contents of capacity agreements
- Obligations of capacity agreement holders, including penalties
- Technical operation of the Capacity Market.
The role of the EMR Delivery Body, National Grid ESO is responsible for:
Administering key elements of the Capacity Market including:
- Capacity Market Register
- Agreement Management
Administering key elements of the CfD regime including:
- Application and Qualification
Also, for producing annual Electricity Capacity Reports for Government to advise on capacity requirements in order to meet the published reliability standard.
The LCCC is a private company owned by BEIS. They manage the contracts awarded to CfD Generators successful via the CfD Allocation Rounds. The management of the contracts includes during the construction, delivery phase and making CfD payments. This also involves LCCC managing the Supplier Obligation Levy that funds CfD payments, which LCCC forecast.
LCCC’s Guiding Principle is to maintain investor confidence in the CfD scheme and minimise costs to consumers. Further information is available in the LCCC Framework document.
ESC is responsible for carrying out the obligations to manage Capacity Market payments to Capacity Providers. This also includes holding Credit Cover for Applicants and conducting Metering Assurance.
Key to both roles is providing feedback to BEIS on the schemes and to Ofgem on the Capacity Market Rules to support them in making improvements in line with ESC Guiding Principles.
ESC’s Guiding Principle is to maintain market participants’ confidence in the Capacity Market settlement process and minimise costs to consumers. Further information is available in the ESC Framework Document.
Settlement Service Provider (EMR Settlement Limited (EMRS))
EMRS is the Settlement Service Provider for both CfD and Capacity Market schemes on behalf of LCCC and ESC.
- It is our responsibility to run the CfD Settlement System and operate the processes to enable CfD payments to be calculated and settled.
- For the Capacity Market it is also our responsibility to manage the settlement of payments to and from Capacity Providers and electricity Suppliers.
Successful CfD Generators of renewable projects enter into a private law contract with the LCCC. They are paid a flat (indexed) rate for the electricity they produce over a 15-year period; the difference between the ‘strike price’ (a price for electricity reflecting the cost of investing in a particular low carbon technology) and the ‘reference price’ (a measure of the average market price for electricity in the GB market).
Capacity Providers receive Capacity Payments for reliable sources of capacity to ensure they deliver energy when needed. Capacity Providers are required to adhere to their Capacity Market Agreement and payments are based on the Clearing Price achieved from the Auction.
Active electricity Suppliers contribute to both the CfD and Capacity Market funding arrangements.