Measures to pay energy companies to ensure there is enough power in the system to meet peak demand will be brought in a year earlier, the Government has said.
The “capacity market”, in which generators bid for contracts to guarantee there are enough power plants on stand-by to meet UK’s electricity needs through the winter, will now come in for 2017/18, instead of 2018/19 as planned.
Reforms to the system announced by the Government also involve plans to buy more electricity capacity and to buy it earlier to encourage investment in new gas-fired power stations to secure power supplies.
The reforms include tougher action on companies which back out of their contracts, by closing power plants for which they have won payments for keeping online to meet peak demand.
The closure of ageing coal-fired power plants and a lack of investment in new schemes such as gas-fired power stations means the margin between the UK’s peak demand for electricity and the amount of generation on the system has tightened, raising fears of blackouts.
The Government said it will also look at payments being made under the capacity market to highly-polluting diesel generators.
Auctions for the payments have been held for winters 2018/19 and 2019/20, and the Department of Energy and Climate Change said it would hold an auction for winter 2017/18 early next year.
Energy and Climate Change Secretary Amber Rudd said: “Ensuring that our families and businesses have secure energy supplies they can rely on now and in the future is not negotiable and I’ll take no risks with this.
“The capacity market has driven down costs and secured energy at the lowest possible price for bill-payers, but I’m taking further action to tackle the legacy of under-investment and ensure our country’s long-term energy security.
“By buying more capacity earlier, we will protect consumers and businesses from avoidable spikes in energy costs.”
She also said it would send a “clear signal” to investors that would encourage the construction of new energy sources including gas and interconnectors which link up the UK grid with supplies in other countries.
Ageing coal-fired power plants are closing under air pollution regulations and the Government has proposed phasing out all coal plants by 2025 to cut greenhouse gas emissions.
Ministers want to see new gas plants built to fill the supply gap caused by closing coal plants, to secure power when renewables may not be available on the system.
Falling global fossil fuel prices – which have reduced energy costs – have also made generating power unprofitable for many non-renewable energy plants and they are being under-used in the face of more clean power supplies.
As a result, many coal plants are already closing, with three of the four units at Fiddler’s Ferry power station in Cheshire set to shut despite having secured a contract to provide capacity in winter 2018/19, which owner SSE face a fine for breaking.
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