Miliband to unleash new gas plants to back up patchy wind and solar
He has told the National Energy System Operator (Neso) – the UK's grid operator – that by the end of the decade it must keep 40 gigawatts (GW) of spare generating capacity on standby for days when wind and solar cannot keep the nation's lights on.
The request is part of a system known as the capacity market, where companies are paid to keep generating capacity on standby for days when renewables output plummets or demand surges.
The capacity market already costs British consumers about £1.3bn a year – but this will surge to £4bn by 2030 as reliance on renewables increases, the Office for Budget Responsibility (OBR) has said.
Mr Miliband's letter to Neso has told it to ensure it has 40GW-worth of back-up generating capacity on the system, roughly equating to the output of 35-40 large gas-fired power stations. About two thirds is expected to come from gas and the rest from batteries, interconnectors and other sources.
The riches available to power companies via the capacity market has caused a mini-boom in construction of gas fired power plants. Neso's list of projects seeking grid connections has more than 100 new gas-fired power stations planned around the UK.
Most are smaller than the large power plants built in the past but designed to be more flexible, meaning they can ramp their output up and down according to demand and the price of power.
They make their profits partly from being paid to be on standby and partly from operating only when power prices surge to unusually high levels – as often happens when low winds reduce windfarm output.
Driving up costs
Adam Bell of Stonehaven, an energy consultancy, said the system drove up costs for consumers.
'The capacity market is driving a boom in construction of gas fired power stations but these plants push up prices for everyone in the wholesale market. That's why subsidy costs are rising.
'We know that they are able to make excessive returns and they are also given 15 year capacity market agreements which locks in these effects for too long.'
John Constable, director of the Renewable Energy Foundation, said that the mix of subsidies supporting renewables were collectively costing the UK £25.8bn a year.
'Renewables are intrinsically unreliable,' he said. 'Under the capacity market consumers are forced to provide an indirect subsidy to wind and solar to pay for a shadow fleet of gas turbines and batteries to guarantee security of supply. This results in two parallel electricity systems and so reduces grid productivity and increases costs.'
The move coincides with a separate announcement from Mr Miliband regarding contracts for difference (CfDs) – a different subsidy mechanism. These support construction of renewables such as wind and solar farms by guaranteeing a minimum price for the power they generate.
Mr Miliband said that future projects would now be able to apply for CfDs before even getting planning consent – and could then claim subsidies for 20 years instead of the previous 15 years.
He said such changes would help deliver more clean power and support thousands of jobs.
However, CfDs added £1.8bn to bills last year – equating to about £100 on the average household bill according to parliamentary reports. This too is set to surge, in line with the planned increase in wind and solar farms.
Energy UK, trade body for power suppliers, has backed the changes to the CfD scheme.
A Department for Energy Security and Net Zero spokesperson confirmed the capacity market system would add £21 to the average household bill this year and said future power plants would be built so that they could eventually be converted to run on green hydrogen or fitted with carbon capture technology.
'The Capacity Market mechanism ensures our electricity supply is secure and meets demand. From this auction onwards, unabated gas plants must have a credible plan to decarbonise to be eligible.'
Doug Parr, policy director at Greenpeace UK, said the Capacity Market was a 'rip-off' for consumers and urgently needed reform. He said: 'Our energy market is rigged in favour of gas. It sets the price of electricity 98pc of the time, while only providing around 30pc of our electricity. It's a complete rip off for consumers.'
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