Question

To ask the Secretary of State for Energy and Climate Change, what assessment his Department has made of the potential effect of reducing the Price Average Reference to 1MWh by 2018 on the cost of running future Capacity Market auctions.

Under their Electricity Balancing Significant Code Review, Ofgem have committed to implementing a move to a 1MWh Price Average Reference (PAR) measure by 2018/19, the first delivery year by the Capacity Market:

https://www.ofgem.gov.uk/ofgem-publications/87782/electricitybalancingsignificantcodereview-finalpolicydecision.pdf.

It is therefore expected that this modification has been already factored into Capacity Market auction bids, by current and potential future participants.

Other things being equal, a more cost-reflective wholesale electricity price would be expected to lower bids in the CM; greater revenues earned through the electricity market would offset revenues sought via the Capacity Market. Please see Ofgem’s Impact Assessment on implementation of EBSCR changes for further details:

https://www.ofgem.gov.uk/ofgem-publications/87787/electricitybalancingsignificantcodereview-finalpolicydecisionimpactassessment.pdf.