Comment & Analysis

UK Capacity Market suspension: another blow for the UK engineering knowledge base

Thermal Power Committee

ECJ ruled that the UK Capacity Market mechanism could be in breach of EU State Aid rules
ECJ ruled that the UK Capacity Market mechanism could be in breach of EU State Aid rules

In this member blog, the IMechE’s Thermal Power Committee examine the implications of the recent suspension of the UK’s Capacity Market.

In the midst of the recent months of intense Brexit negotiations, you may have been forgiven for missing that on 15 November 2018, a ruling by the European Court of Justice (ECJ) sent shock waves throughout the UK energy industry.

The ECJ ruled that the UK Capacity Market mechanism could be in breach of EU State Aid rules following a legal challenge brought by Tempus Energy, which argued the mechanism for securing back-up power generation capacity during the winter months unfairly favoured fossil fuel generators over cleaner technologies such as renewables. This resulted in the UK Government promptly announcing an immediate suspension to the Capacity Market including all payments under existing contractual agreements and the cancellation of planned auctions in 2019.

The decision to lift the suspension is pending a detailed investigation by the European Commission into the State Aid compliance of the arrangements, which can take up to 18 months.

This suspension affects owners of CCGTs, gas reciprocating engines, coal plants, nuclear plants and demand side response (DSR) and storage operators who have all participated in previous auction rounds and secured contracts to provide back-up power generation capacity to the UK electricity grid.

Uncertainty and skills gap UK power market

With the relative lack of investment in the power industry in recent years already causing concern of a worsening skills and knowledge gap, this suspension – which has no doubt had a severe impact on investor confidence in the sector – only serves to plunge the industry even further into uncertainty (in addition to the uncertainty from the on-going Brexit developments of course).

In 2016, Jenifer Baxter, Head of Engineering at Institution of Mechanical Engineers (IMechE) in the report Engineering the UK Electricity Gap, said that “the UK has neither the time, resources, nor enough people with the right skills to build sufficient power plants.”

She added, “Currently there are insufficient incentives for companies to invest in any sort of electricity infrastructure or innovation and worryingly even the Government’s own energy calculator does not allow for the scenarios that new energy policy points towards.”

Electric vehicles ahead

The uncertainty is even more worrying with the predicted increase in the volume of electric vehicles in the private and public transport sector.

In July 2018, the Government published its "Road to Zero" strategy which pledged that half of the UK's new car sales will be electric or hybrid by 2030. National Grid’s Future Energy Scenarios in July 2018 predicts that peak electricity demand increase from the charging of electric vehicles (EV) alone in 2030 will be between 3-8 GW, which equates to 4-14% higher than peak demand with no EVs case.

The projected increase in peak electricity demand from EVs – as well as the electricity storage infrastructure required to ensure balancing of the grid – will demand even more young engineers with the right skills to build this infrastructure, as well as senior engineers to adapt their existing skill sets. The ‘right skills’ have been identified in Professor John Perkins’ newly published revisit to his 2013 review of engineering skills – calling for up-skilling and re-skilling of engineers and technicians at all stages of their career to meet the demands of the increasing digitalisation of all aspects of engineering.  

Lessons from the nuclear industry

According to the Nuclear Industry Association (NIA), because a new nuclear power station has not been built in the UK for almost 20 years, the UK now have an ageing nuclear workforce and the industry faces an acute skills gap.

The average age of an engineer in the UK nuclear industry is 54 years old. We cannot allow a similar skills gap to build up in the overall power industry.

Need for market certainty

The future of the UK's electricity system depends on having a power market where investors have certainty and companies can invest in long-term engineering talent.

And given that engineering degrees and technical routes are an excellent qualification for so many other career paths, young engineers themselves need to know they can enter an industry which can promise a healthy pipeline of projects and where they can excel in using and growing their skills and knowledge base, otherwise they will simply use their talents elsewhere.

The current uncertainty in the UK power industry – made worse by the shock suspension of the Capacity Market mechanism and other key market variables – is putting the development of engineers in the UK to work on the electricity infrastructure and innovation we so badly need at immense risk.

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