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Consultancy

Capacity Market and CfD Bidding Strategies

The drive to decarbonise the UK power system while ensuring adequate security of supply led to the development of two key policy incentives: the Capacity Market and the Contract for Difference. 

Capacity markets help ensure that an adequate level of capacity is available in the future to keep the lights on through an auction process. Contracts for Difference (CfDs) guarantee a price to renewable generators that they will be able to sell power at, to incentivise investment.

The introduction of these policies has altered the nature of investment and understanding and forecasting auction outcomes is now a key driver for the success of investors. 

High-voltage power lines. Electricity distribution station. high voltage electric transmission tower. Distribution electric substation with power lines and transformers
Solar panels with wind turbines and electricity pylon at sunset

We have been closely involved in the development and operation of these key policy mechanisms. 

For the Capacity Market, we provide the model used by National Grid to recommend the capacity requirement and calculate the Equivalent Firm Capacities (EFCs) for each auction. 

For the CfD regime, we provide the CfD counterparty (the Low Carbon Contracts Company) with the models they use to determine supplier charges and the levels of their reserves. 

Using this experience, we support a wide range of industry participants including independent generators and energy suppliers throughout each stage of auction participation, from pre-qualifying assets to understanding the effect on portfolio profitability. 

We can:

  • Support bidding strategies, including auction war game simulations 
  • Provide projections of how generating assets could be affected, including the impact on the wider energy market 
  • Understand the impact of the ongoing changes to the market design 
  • Provide you with models to use in-house in simulated possible CM and CFD auction outcomes. 
Chris Matson, Partner

Policies aimed at rewarding firm capacity or green generation can be a huge boost to an investment case, but it’s important to know how you should bid, what is available and what you are committing to. Having supported in the design of both of these mechanisms, we help clients maximise their opportunity in accessing these revenue streams.”

How we can help

Click to read our Capacity Market and CfD Bidding Strategies case studies

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National Grid enlisted the expertise of LCP Delta to develop a method for calculating incremental Equivalent Firm Capacities (EFCs) for wind and solar plants.
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How LCP Delta advised RWE on the impact of the auctions on their generation portfolio and on wider market variables
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Focuses on LCP Delta's collaboration with National Grid to model the contribution of limited duration storage plants to system security. LCP Delta was commissioned in 2017 to inform the de-ratings for different storage durations in the capacity mechanism.
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This case study underscores the significance of modelling security of supply risks in the energy sector. By utilising advanced modelling techniques, it enables robust risk assessment, proactive decision-making, and effective mitigation strategies, ensuring a reliable and resilient energy supply chain.
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Discover the power of the LCCC modelling framework in supporting low carbon energy projects. Streamline project evaluation, risk assessment, and financial planning for a seamless transition to a sustainable future while maintaining economic viability.

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