Broad model for a capacity remuneration mechanism in an Energy Service Provider-led market

Published: 29 November 2019


Rethinking Electricity Markets is an Energy Systems Catapult initiative to develop proposals to reform electricity markets so that they best enable innovative, efficient, whole energy system decarbonisation.

This part of the project focused on one element of the design – security of supply – and explored:

  • different approaches to security of supply and capacity remuneration mechanisms;
  • the possible evolution of the security of supply challenge in the future;
  • how capacity remuneration can work in a market model where consumers buy integrated energy service packages from Energy Service Providers (ESPs)
  • potential arrangements for security of supply that are based on more decentralised contracting by service providers to meet the needs of their customers, including for reliability.

In such a future system consumer-facing ESPs take a more prominent role in retailing integrated energy services (across electricity and heat) to customers. ESPs could use digital and data technologies to build deeper understanding of customer requirements in terms of warmth, home comfort and reliability.

Figure: Potential Energy Service Provider interactions

Key points

Electricity market designs in a range of jurisdictions, including GB, have adopted or are adopting various forms of centralised or decentralised CRMs to support the delivery of reliability and security of supply.

The report sets out the nature of security of supply requirements, reviews a range of alternative CRM arrangements from other jurisdictions, and begins to describe how they might fit within an ESP-led system.

The report summarises initial steps needed to enable the transition to a more decentralised framework for reliability, including:

  • Changes to wholesale market arrangements to increase the ability for the market to undertake balancing actions closer to or potentially in real time:
    • Sharper incentives for balancing to form part of the arrangements.
    • Reducing gate closure timescales and increasing granularity of trading periods to better align with real-time balancing needs.
  • Complementary developments to support technical coordination of activities close or in real time by more actors and resources.
  • Reducing the traditional system operator role towards a more limited Reserve Operator role.