UK energy auction ‘could boost diesel generators’

Diesel-powered electricity generators could benefit from a government energy procurement process currently underway, according to think tank IPPR

Diesel-powered electricity generators could be set to benefit from a government energy procurement process currently underway, despite calls for regulations to curb the use of such generators in the UK due to air pollution concerns.

Diesel generators are increasingly being used to provide standby electricity generation in the UK, IPPR says

The government yesterday (December 8) launched the second auction as part of its ‘capacity market’ scheme, which is designed to ensure there are enough power stations online in the UK during peak periods to meet the electricity demand.

Currently, energy generation from UK power stations is close to capacity, and so more power is needed to prepare for times when electricity usage peaks. However, developing new power stations can take years and so other options are being sought in the short term.

Energy minister Andrea Leadsom said the government’s priority was “to ensure that hardworking families and businesses have access to secure, affordable energy supplies they can rely on”.

However, a number of operators of ‘diesel farms’ are expected to secure subsidised contracts as part of the procurement, and diesel generators are described by the Institute for Public Policy Research (IPPR) think tank as “the dirtiest form of energy generation available, worse even than coal”.

Diesel gensets are blocks of reciprocating diesel engines connected to an electric generator which provide modular electric generating capacity and come in standardised sizes.

But, according to IPPR, increasingly they are being built and connected to the network to provide generation when there is a sharp peak in electricity demand.

Subsidy

In a report published yesterday, IPPR also said the subsidy paid out through consumers’ energy bills to contract winners would increase by up to £434 million in the capacity market auction, providing poor value for money for consumers while subsidies for greener energy such as solar power are being cut.

It means that together with revenues from the energy market, the increasing subsidy could allow owners of small diesel generators to earn pre-tax returns of up to 23%, a “conservative” estimate by IPPR suggests.

The think tank explains: “We are seeing a rapid proliferation of diesel generators, and this will continue unless new projects are prevented from accessing further subsidies”.

Energy Bill

As a result, IPPR is calling for a legislation to ensure future diesel generators are be prevented from entering the capacity market, as well as constraints on those that already exist or have secured capacity contracts.

Due for its second reading in the House of Commons in January 2016, the Energy Bill should be amended to prevent any generator with an ‘instantaneous carbon intensity’ over 450gCO2/kWh from accessing 15-year contracts, according to IPPR.

Meanwhile, units that have already received 15-year contracts should be subject to the best available technology requirements to mitigate air pollutants in line with new EU regulations for Medium Combustion Plants.

IPPR states: “The role that diesel provides could be fulfilled by other means, using smart technologies to manage electricity demand more efficiently and without emitting CO2 and air pollutants that are harmful to human health.”

Market auction

According to the Department for Energy and Climate Change (DECC), the second capacity market auction opened yesterday will ensure extra capacity for 2019/20, acting like “an energy guarantee”.

The auction is being run by the National Grid and will allocate 44.7GW of capacity for delivery in 2019/20, which is enough to power the UK. It is open to new and existing generators, demand side response providers and interconnectors.

Commenting from the current climate negotiations at the COP21 meeting in Paris yesterday, Labour’s shadow energy minister Barry Gardiner MP criticised the auction for “taking hypocrisy to a new level: UK gov. capacity auction to give 1.8GW to diesel whilst lecturing the world”.

But, energy minister Andrea Leadsom said: “The capacity market is a key part of our electricity market reform. The competition helps drive down costs, while ensuring we have enough generation power the nation. It also gets the best out of our existing power stations as we increase the amount of electricity we get from low carbon technologies.”

The latest the auction could finish is the last round on Friday (December 11), while further auctions will be held for future delivery years on a rolling basis. The next auction to top-up the amount procured for 2019/20 will take place in 2018.

Related Links:

–DECC capacity market auction
–IPPR report: ‘Mad Maths – How new diesel generators are securing excessive returns at billpayers’ expense’