An inefficient and inflexible UK capacity market is costing UK consumers around £500 million – a number due to reach over £1 billion in subsequent winters.

At a time of fast rising inflation, UK businesses can ill afford to bear the brunt of a monolithic capacity market.

The capacity market is used by government as a sledgehammer trying to crack a nut with plans underway to purchase 53.8GW of energy in the capacity auction for next winter when peak demand this winter has reached only 50.4GW.

The reasons are simple – the fall in peak demand has coincided with the decline of dispatchable generation meaning less flexibility embedded in the system.

The low clearing price in the capacity market is therefore not a sign of success.

Government should instead incentivise demand reduction or flexibility at peak times to help consumers and the businesses that depend on a well-functioning energy market particularly at a time of economic uncertainty.