The Government has introduced the Capacity Market to provide an insurance policy against the possibility of future blackouts – for example, during periods of low wind and high demand – to ensure that consumers continue to benefit from reliable electricity supplies at an affordable price.
The Capacity Market is designed to ensure sufficient reliable capacity is available by providing payments to encourage investment in new capacity or for existing capacity to remain open. EMRS administers the payment mechanism.
Capacity Providers who are successful in the auction are awarded Capacity Agreements, which confirm their CM Obligation and the level of Capacity Payments that they will be entitled to receive, which are based on the auction clearing price.
Monthly payments for the provision of capacity are made to Capacity Providers in line with their Capacity Agreements. Monthly payments are received from suppliers based on forecast demands, between 16.00 and 19.00 – November to February, which are used to determine their market share. Once the actual data becomes available the payments are reconciled using this revised data. The following diagram illustrates the monthly payments: