Supporting the GB Electricity Market: Capacity Assessment and Capacity Market Design
Submitting InstitutionUniversity of Durham
Unit of AssessmentGeneral Engineering
Summary Impact TypeTechnological
Research Subject Area(s)
Mathematical Sciences: Statistics
Economics: Applied Economics, Econometrics
Summary of the impact
The risk of having insufficient generating capacity to support demand is
a critical issue in electric power system planning and market design. The
2011 Energy Act placed a duty on the Regulator (Ofgem) to produce an
annual Electricity Capacity Assessment Report to the Department of Energy
and Climate Change (DECC) to assess this risk looking five years ahead.
This Case Study demonstrates how Dr. Chris Dent was contracted by National
Grid to design technical modelling for the report based on his research,
and the impact this has made in government policy and the wider public
debate. Additionally it is shown how Professor Janusz Bialek provided
input to the Capacity Market which forms a part of the Electricity Market
Reform (EMR) due to be implemented in 2014. EMR is envisaged to stimulate
estimated £110 billion of investment until 2020 while the Capacity Market
itself is estimated to be worth about £1.5 billion per year.
Electricity Capacity Assessment
Research on model structures for generation adequacy assessment, on the
capacity value of additional generation, and on the uncertainty in
adequacy and capacity metrics due to finite size demand and wind time
series underpins this case stud and was carried out between mid-2010 and
end April 2013 (the date of submission of National Grid's report to Ofgem
on capacity assessment). The relevant researcher at Durham is Dr. Chris
Dent, who was at Durham for the whole duration of this work. The
underpinning research was carried out in collaboration with Dr. Stan
Zachary (a statistician at Heriot-Watt University), partly within their
academic duties, and partly within the Capacity Assessment Project itself.
Zachary and Dent regard each other as equal authors of this work, Zachary
having slightly more emphasis on theoretical matters, and Dent having
slightly more emphasis on the application side.
The underpinning research consists of the following:
2.1 Formulation of whole-season adequacy assessments in
time-collapsed picture , . Generation adequacy
assessments have in the past been carried out as either annual peak
calculations, or as whole-season risk assessments in a model with an
explicit time index. This research reformulates the whole-season adequacy
assessment problem in terms of the available conventional (X) and
wind (Y) capacity and demand (D) at a randomly chosen point
in time within that season.
2.2 Probability theory of capacity value of additional generation
, . The contribution of wind generation within adequacy
assessments is visualised using capacity value metrics such as Equivalent
defined as P(M+Y < 0) = P(M + νYEFC
< 0) where M = X-D).
This research derives a new closed-form expression for the EFC of small
wind capacities. This, along with other probability results such as that
for the capacity value of when the left-tail of the distribution of may be
approximated by an exponential function, shows transparently how
calculated capacity value results depend on the distributions of and.
2.3 Bootstrap uncertainty analysis . The research
demonstrates for the first time how bootstrap uncertainty analysis may be
used to quantify the consequences, in terms of uncertainty in adequacy
risk and capacity value results, of using a finite size historic wind and
demand dataset in adequacy assessment.
2.4 Winter severity analysis . Detailed demand data in
GB are only available from 2005 onwards; this is insufficient to give a
long-run view of the distribution of demand. The research shows how demand
reconstructed from a longer temperature time series (1990-2012) may be
used to weight adequacy results conditional on the severity of the 7
winters 2005-12 in order to give that longer-run view of the distribution
Capacity Market and Electricity Market Reform (EMR)
Research on the capacity market was undertaken by Bialek in Durham from
September 2009 in collaboration with Dan Eager from the University of
Edinburgh (former PhD student of Bialek) and Ben Hobbs of Johns Hopkins
University (USA). That research was utilised by Bialek during his
secondment to DECC July-December 2012 when he advised DECC on the EMR.
The underpinning research was based on an original idea of Bialek  of
modelling the generation investment as closed-loop feedback process. This
model was applied to modelling GB capacity investments and informed
Bialek's contributions to the design of the Capacity Market.
References to the research
 "Capacity Value of Additional Generation: Probability Theory and
Sampling Uncertainty" by C.J. Dent and S. Zachary, International
Conference on Probabilistic Methods Applied to Power Systems, Istanbul,
 S. Zachary and C.J. Dent, "Probability theory of capacity value of
additional generation", Proc. IMechE, Part O: Journal of Risk and
Reliability 226(1): 33-43 (2012).
 C.J. Dent and S. Zachary, "Winter Severity Analysis", Appendix N in
"Capacity Assessment Project: Report to Ofgem", National Grid, 1 May 2013.
 D. Eager, B.F. Hobbs and J.W. Bialek, "Dynamic Modeling of Thermal
Generation Capacity Investment: Application to Markets With High Wind
Penetration", IEEE Trans. Power Systems, Vol. 27, No. 4, 2127-2137,
Details of the impact
Electricity Capacity Assessment
Dr. Dent was contracted by National Grid from November 2011 to May 2012,
and from November 2012 to April 2013, to design technical modelling for
the 2012 and 2013 Electricity Capacity Assessment studies. He was chosen
for this work on the basis of previous research on capacity value of wind
carried out in collaboration with National Grid (including a 3 month full
time secondment to the Control Centre in 2010), one output of which was
the paper  above.
The structure of the Capacity Assessment Model code (the computational
engine for which was written by Dr. Dent as VBA code within MS Excel) is
based on the time-collapsed formulation of described above in Point 2.1 of
Section 2. This code includes a number of features developed by Dr. Dent
to increase computational efficiency, most notably using generating
capacities and demands rounded to the nearest MW to facilitate use of fast
integer arithmetic in convolution of distributions. The bootstrap
uncertainty analysis approach described in Point 2.3 was used in the study
to assess the consequences of a finite length (2005-11) demand history in
terms of uncertainty in model outputs (and is used directly in the
Capacity Assessment Reports published by Ofgem in 2012 [A] and 2013 [J],
e.g. on page 40 and in Fig. 4.5 of the 2013 report); assessment of such
uncertainties is critical to good decision making on the basis of
modelling results. Matt Roberts, Senior Future Services Analyst at the
National Grid Control Centre and the technical modelling lead from NG's
side for the project, corroborates this statement of Dr. Dent's
One of the key issues in the Electricity Capacity Assessment study is
understanding wind's contribution to generation adequacy, which is done
through the metric of Equivalent Firm Capacity (EFC). The EFC values
calculated were higher as a percentage of the installed wind capacity than
expected by many industry figures in the 2012 report, and further work has
been done to explain this based on the work by Zachary and Dent. Most
notably, the expression for the capacity value of small installed wind
capacities published in  is used in National Grid's 2013 report to
Ofgem to explain how the EFC depends on the distributions of demand and of
available conventional capacity, in addition to the distribution of
available wind (see [M]).
A further issue in the 2012 study was uncertainty in the calculated
values of reliability indices arising from the short history of historic
demand data which was available. As described in Point 2.4 above, for the
2013 study Dent and Zachary developed a new approach to reweighting the
contributions to model outputs from demand data from winters of different
severities, in order to provide a result based on a longer run weather
profile which helps validate the results derived using a short history of
metered demand data and which forms the basis of the section `Winter
Severity Analysis' on pages 96-98 of Ofgem's 2013 report [J].
The Electricity Capacity Assessment Study has provided a key input to
government policy on security of electricity supply. It has also been a
major source of information to the public on security of supply risks over
the coming years, and a key source of evidence to the electricity industry
and NGOs in the wider public debate on energy security.
The model development and calculations for the 2012 Capacity Assessment
Study were carried out between November 2011, and 1 June 2012 when
National Grid's report on the technical modelling was submitted to Ofgem.
The statutory report from Ofgem to DECC [A] was published on 5 October
2012. The BBC News story published that same day [B] illustrates how the
report immediately entered the public debate, as does the article [C] from
Page 4 of the following day's Guardian.
The impact on government policy is seen through its citation in DECC's
2012 Statutory Security of Supply Report to Parliament [D], in the DECC
documentation providing updates on Electricity Market Reform process in
November 2012 [E], and through numerous other mentions in Parliamentary
and Government documents and submissions e.g. [F]. Its wider impact in the
public debate on energy policy is further illustrated by its citation by
non-governmental organisations such as Friends of the Earth [G] and the
WWF [H]. Its key position in the thinking of Ofgem is demonstrated by its
citation by its Chief Executive in a major public speech [I].
The continuing impact of the underpinning research on the 2013 Capacity
Assessment Report [J], following its fundamental study in 2012, is
demonstrated by the citation of the paper  in an Appendix of National
Grid's 2013 report to Ofgem [N], and by the inclusion of new underpinning
research as Appendices in the same report . The 2013 report's impact on
the wider public debate was greater still than in 2012, making front page
headlines in both the broadsheet (e.g. [K]) and tabloid (e.g. [L]) press,
[L] and further reports how Michael Fallon, Minister of State for Energy
and Climate Change, responded to the report on the previous day's BBC
The Capacity Assessment Report's continuing critical influence on public
policy is demonstrated by its citation in DECC's Consultation on the draft
Electricity Market Reform Delivery Plan [M], in which the 2013 report is
cited on page 48 as a guide to the meaning of the Loss of Load Expectation
reliability index in practice. This report further states that "The System
Operator (National Grid) will set out how much capacity to issue capacity
agreements for, in order to meet the reliability standard, and will
provide advice to the Secretary of State who will in turn take the
decision over how much capacity to procure", indicating a key role for
National Grid's and Durham's technical work on capacity assessment in the
running of a future capacity mechanism designed to ensure an appropriate
level of security of electricity supply in GB. In a letter [P] to Dr.
Dent, the Economic Advisor at DECC confirms that "This analysis has been a
crucial piece of evidence in the policy making process."
Capacity Market (CM) and Electricity Market Reform (EMR)
The need for a Capacity Market in GB has been highlighted over the last
few years by a number of reports by Ofgem and DECC [B, C, I] which clearly
indicated the increasing risk of lights going out in GB before the end of
this decade due to insufficient investment in power generation capacity.
Lack of adequate generation capacity can have disastrous economic and
political consequences as the cost of any blackouts could be many billions
of pounds. To address that concern the CM has been proposed as an
important part of the EMR package due to be implemented in 2014.
Bialek's particular contribution has been in relation to the penalty
regime for plants receiving payment through CM but which failed to deliver
during power shortages. The initial proposal put forward by an eminent US
economist, Stephen Stoft, advising DECC, was that any plant failing to
deliver should be penalised whatever the reason for failure, i.e. whether
it was due to a scarcity of generation or an unpredicted contingency due
for instance to a sudden tripping of large power stations. That view was
strongly opposed by Bialek who pointed out that the proposed mechanism
would result in economic inefficiencies. Consider a peaking generator,
i.e. a generator that does not expect to operate 24/7 but only when the
price is high or when called on to operate by the System Operator (SO)
with a sufficient warning. If a contingency counted as scarcity, then in
order to avoid penalties for non-delivery, the peaking generator would
have to be prepared to generate at a moment's notice, as contingencies can
happen at any time. Thus the additional cost of its preparedness (manning
the plant, synchronising it, standing-by etc.) would go up and the
consumers would have to pay more. On the other hand, if a contingency did
not count as a scarcity event, then the peaking generator need only be
prepared to operate when warned by the SO.
The consequent heated debate between Bialek and Stoft was resolved in
Bialek's favour as the current view of DECC (subject to consultation) is
that penalties for non-delivering generators would be levied only if a
Capacity Market Warning has been issued at least 4 hours ahead of an
event. The Head of Engineering at DECC, confirmed Bialek's contribution
[O]. Bialek's contribution gives a potential of saving millions of pounds
of unnecessary costs if peaking plants were required to operate at
moment's notice as in the original CM proposal.
Sources to corroborate the impact
[A] `2012 Electricity Capacity Assessment Report', Ofgem, 5 October 2012.
[B] `Power shortage risks by 2015, Ofgem warns', BBC News, 5 October
[C] `Power blackouts possible within three years, energy regulator
warns', The Guardian, 6 October 2012, Page 4.
[D] `Statutory security of supply report 2012', DECC, 29 November 2012.
[E] `Annex C: Capacity Market: Design and Implementation Update',
Department of Energy and Climate Change, November 2012, Accessed 6 May
[F] `Energy Bill: Memorandum Submitted by SSE' [submission to the
relevant Public Bill Committee of Parliament], January 2013, Accessed 6
[G] `The Draft Energy Bill: Britain's Energy Future lost', Friends of the
Earth, October 2012.
[H] `Response to comments by Ofgem's Chief Executive `, WWF, 19 February
[I] `Will GB's lights stay on and will the gas keep flowing: a look at
the next decade?', public lecture by the Chief Executive of Ofgem, 19
[J] `2013 Electricity Capacity Assessment Report', Ofgem, 27 June 2013.
[K] `£10bn boost for nuclear as risk of power blackout rises', The
Guardian, 28 June 2013.
[L] `Electricity to be rationed', The Daily Mail, 28 June 2013.
[M] `Consultation on the draft Electricity Market Reform Delivery Plan',
DECC, July 2013.
[N] C.J. Dent and S. Zachary, "Measures of Capacity Adequacy in the GB
Electricity System", App. Q in "Capacity Assessment Project: Report to
Ofgem", National Grid, 1 May 2013.
[O] Head of Engineering, DECC, letter to Prof. Bialek.
[P] Department of Energy and Climate Change, letter to Dr. Dent.
[Q] National Grid e-mail communication.