As part of its ambitious low-carbon plans, the UK government is tackling both the supply of electricity (through its various subsidy regimes that support low carbon generation) and the demand for electricity.

The government’s proposals for the Capacity Market include (a) spare generation capacity that can be switched on during peak periods (by far the biggest contributor to the Capacity Market), and (b) initiatives that target the demand side. Perhaps the better known of these initiatives is Demand Side Response, that requirement of the Capacity Market that can be met by large-scale consumers who can shift or switch demand to non-peak periods.

The other demand-side component of the Capacity Market is Electricity Demand Reduction, where demand is reduced as a result of the installation of more efficient kit. The government is running an EDR Pilot programme, to examine the viability of electricity demand reduction in the Capacity Market and to learn lessons for subsequent delivery (assuming EDR is viable).

The EDR Pilot will be run on an auction basis, with the first auction to be held on 12 January 2015, with a subsidy budget of £10m.

Expressions of Interest are now invited for the first auction. If successful, participants will be invited to submit a bit into the auction on a pence/kW basis for the average amount of capacity reduction their project is expected to deliver in a specified winter peak period (with a maximum price of £300/kW).

Winners will require to sign a Participant Agreement, committing them to install and report on the measures they bid into the auction. In exchange for full compliance, DECC will pay participants their winning bid price multiplied by the average capacity savings committed to in their application.