The objective of this analysis is to shed light on the impact—on electricity prices and net costs borne by the consumer—of the introduction of the Capacity Market.The analysis uses the ‘surprise’ announcement of the introduction of a Capacity Market Early Auction to assess its impact on wholesale prices using the ‘differ-ence-in-differences’ (did) method. Although we cannot exclude entirely the possibility of other drivers, our results suggest that the announcement of introduction of the Early Auction may have reduced the spread between peak and base prices by £0.84/MWh. This may be consistent with a reduction in wholesale revenues of about half the total value of the Capacity Market of £380 million. Our research is subject to a number of assumptions and accompanying caveats which we spell out.
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