This report presents the findings from Phase 1 of the evaluation of the Transitional Arrangements (TA) for Demand-Side Response (DSR) and small-scale distribution connected generation. Commissioned by the then Department of Energy and Climate Change (DECC), the evaluation was led by CAG Consultants and delivered in partnership with Databuild (now Winning Moves), Verco and NERA Economic Consulting. Phase 1 of the evaluation examined the outcomes and early impacts of the first TA auction.
Part of the Capacity Market (CM) for security of the electricity supply within the government’s Electricity Market Reform (EMR) programme, the TA is a pilot designed to support BEIS’s overall objectives of promoting growth and energy security, while ensuring affordability of the energy supply.
The TA aims to encourage development of Demand Side Response (DSR) or small-scale distribution-connected generation that is increasingly needed to balance supply and demand in a decarbonised electricity grid.
DSR may be achieved through any combination of onsite generation, temporary demand reduction or load-shifting. The scheme involves two auctions for specific types of capacity within the CM and are in addition to the main CM auctions.
The TA has three main objectives, which we have used as the basis of three project hypotheses to be tested by the evaluation:
1. To contribute to security of the electricity supply to help with short-term forecasted system tightness
2. To develop a stock of flexible capacity that can be available for the one year ahead auction, thereby contributing to liquidity in this and subsequent year-ahead auctions
3. To encourage enterprise and develop experience, confidence and understanding so that DSR and embedded generation will be able to realise their potential and ultimately compete with larger generation assets in the CM.
The first TA auction, which is evaluated in this report, was open to providers of DSR and small-scale distribution-connected generation services. In May 2016, BEIS announced changes to the CM, including narrowing the second TA auction to ‘turn-down’ DSR only. In this report, we present our findings about the first auction in relation to the objectives set out above, and learning points for future CM auctions.
Evaluation-of-the-Transitional-Arrangements-for-Demand-Side-Response-and-small-scale-distribution-connected-generation.pdf