Question

To ask the Secretary of State for Energy and Climate Change, what estimates he has made of the effect of his plans to establish a capacity market on (a) domestic and (b) industrial energy bills between (i) 2015 to 2020 and (ii) 2021 to 2025.

The impact of the Capacity Market on bills was estimated for the Electricity Market Reform Impact Assessment which can be found at:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/288463/final_delivery_plan_ia.pdf

The results represent the net impact of capacity payments (beginning in 2018/19) and wholesale price impacts relative to a no capacity market scenario and are presented below in £, % and £/MWh terms.

Estimated net impact of the capacity market on average annual electricity bills (£)

Estimated net impact of the capacity market on average annual electricity bills (%)

Estimated net impact of the capacity market on average annual electricity prices (£/MWh)

However, as set out in the EMR Impact Assessment, we believe that our current modelling may over-estimate the net bill impact of the Capacity Market. Additional investment in generating capacity, paid for through the Capacity Market, should reduce volatility in the wholesale electricity price, since it ensures we avoid scarcity situations where prices spike and costly blackouts occur. As there is limited evidence on the behaviour of wholesale prices under conditions of low capacity margins, there is considerable uncertainty about what the overall bill impact of the Capacity Market might be, especially when compared to a world without a Capacity Market to address security of supply issues.