What is the Capacity Market?
As part of the policies developed through Electricity Market Reform (EMR), the Capacity Market scheme helps to ensure that the UK has a reliable electricity supply in the future. The scheme incentivises those who generate electricity, financially rewarding them for making their ‘capacity’ available at times when electricity is most needed.
The Capacity Market scheme is auction based and generators who are successful in the auction are awarded capacity agreements. These agreements confirm their Capacity Market obligation and the level of capacity payments that they will be entitled to receive, based on the auction clearing price. The scheme is administered by EMR Settlement Ltd. All energy suppliers are obliged to pay a levy to fund this ongoing development. This cost is then passed onto electricity customers through their invoices.
How are Capacity Market charges calculated?
Applicable to customers with pass through Capacity Market charges specified in their contract.
The total Capacity Market charge consists of two elements, shown as separate line items on your invoice.
• Capacity Market Settlement Levy Charge - covering the administrative costs of running the scheme. The cost for the year is pre-determined by EMR Settlement Ltd.
• Capacity Market Supplier Obligation Charge - covering payments made to Capacity Market generators. The cost for the year is estimated by EMR Settlement Ltd.
The charges are weighted in line with forecast consumption volumes and charged in £/day.
How are Capacity Market charges reconciled?
Although Capacity Market charges are invoiced throughout the year, the final reconciliation is based on peak winter consumption figures as follows:
• In March, National Grid publishes the final total Grid Supply Point (GSP) volume, for working days November to February (1600 - 1900). This gives a final industry peak volume consumed during this winter period, which is used to reconcile the charges.
• In June, EMR Settlement Ltd publishes the final total cost of the Capacity Market Supplier Obligation Charge for the year.
• The finalised total costs for both the Capacity Market Settlement Levy Charge and the Capacity Market Supplier Obligation Charge are then divided by this final GSP volume. This gives a final £/MWh rate per day.
• To calculate the reconciliation, we then compare the £/day amounts charged through the year with the final £/MWh charge for this period, and invoice/credit the difference between these.
• We will calculate your reconciliation for the Capacity Market Settlement Levy Charge in April once the final volume is known. The reconciliation amount will appear on your May invoice.
• We will calculate your reconciliation for the Capacity Market Supplier Obligation Charge in June, once both the final volume and final scheme cost are known. The reconciliation amount will appear on your July invoice.
You can find more information on the Capacity Market here: https://www.gov.uk/government/collections/electricity-market-reform-capacity-market
You can find more information on EMR Settlement Ltd here: https://www.emrsettlement.co.uk/