Improving our connection to Europe’s energy markets means our energy companies can buy electricity from wherever it’s cheapest. It will give British bill payers a better deal, strengthen our energy security and create more opportunities for growth at home. It will also increase the potential for low-carbon electricity to be used across the UK. And by ensuring as many resources as possible can take part in the Capacity Market, competition will be increased, driving down costs to bill payers.
Energy and Climate Change Secretary Ed Davey said:
“We’re working tirelessly to get the best possible deal for British bill payers, and that includes linking us to other countries so that energy companies can buy low-carbon electricity from wherever it’s cheapest.
“Including interconnectors in the Capacity Market from next year shows the strongest signal yet to potential investors – building on the recent announcement of funding for interconnectors that will create new links to Norway, Belgium and France to almost double the power we can source from overseas, particularly from low carbon energy sources such as hydro, wind and nuclear.”
The Capacity Market will help keep the lights on by driving new investment in electricity infrastructure, as well as getting the most out of our existing power stations as we move to a low carbon electricity system. We are on track to hold the first auction at the end of the year, which is expected to be highly competitive following a successful prequalification process.
By including interconnectors in the Capacity Market, we’re providing the clearest signal yet to developers and investors. There are currently several interconnector projects in the pipeline representing about £5 billion of private sector investment by 2020. By providing cheaper energy, interconnectors could save consumers up to £9 billion out to 2040.
The European Commission recently announced €40 million funding towards the longest subsea cable in the world, which will link the UK to Norwegian hydropower, and two interconnectors to France. One will use the Channel Tunnel, while the other has the potential to connect to future tidal generation being developed off the coast of Alderney, one of the Channel Islands. Together these three projects will almost double the power the UK is able to receive via interconnectors, with further projects also in the pipeline.
Notes to editors
We are working towards the objective of an integrated European energy market that ensures security of supply with an overall lower cost for consumers. This will include a pan-European approach to cross-border participation in capacity mechanisms. In the interim, to ensure that the investment opportunity for interconnectors is preserved and to promote competition in the Capacity Market auction, we have decided to enable interconnectors to participate directly in the Capacity Market from 2015 for the four-year-ahead capacity auction.
The eligible capacity of each interconnector will be determined on a case by case basis for the Capacity Market, taking into account both their technical reliability and an assessment of the likely future direction of electricity flows at times of stress. They will participate in the auction like any other resource and will be eligible for one year agreements and subject to the same obligations and rules of participation as domestic capacity providers.
Full details of the government’s response to the consultation on Capacity Market Supplementary Design Proposals and Transitional Arrangement will be published early in the New Year, as secondary legislation is put before Parliament.