Mr. Paul Blount:

If you design the auction properly, you want to make sure you are not paying more for the solution than the problem is costing. We are often asked what is the missing money problem, or what is the gap in the market. The issue is that not all missing money should be filled. It depends on the technology and the system benefits associated with that technology as to how much of the missing money should be filled.

I apologise that this is an indirect answer to the question but I would step back for a second and ask: "What is the problem we are trying to solve?" We have very ambitious targets to decarbonise the power system. When you look at the carbon budgets, we effectively need to deliver something very close to a net-zero system as soon as possible after 2030. If we attempt to do that simply by building onshore wind, offshore wind and solar, eventually there is the wastage of that energy where there is oversupply at times when there is more renewables than there is demand. There are network constraints and curtailment. As you continue to build those, that gradually gets more expensive and as that happens, the surplus energy that is available for storage increases which means the cost effectiveness of storage in general starts to increase and eventually storage starts to become the next-best investment to make. Therefore, the trick to all this is to design an auction scheme where the storage of all the different shapes, flavours, colours and varieties in terms of efficiency duration can all compete and the technologies that perform best in terms of decarbonising the power system at least cost to the consumers win. If you do that, it is not really about the missing money relative to the market design. The market design today does not really work especially well in the context of a net-zero power system so you are actually developing new market mechanisms with long-term auctions that allow the system to evolve to the lowest possible cost decarbonise power system.

I would add that there are probably issues in the existing market design that are not helping. For instance, storage at the moment would pay a demand-to-use-the-system charge on the transmission side. That is effectively a cost for using the grid. In reality, this category of technologies is actually solving network congestion. It is reducing the need for investment in the grid and, as such, should probably be in receipt of a congestion-management payment as opposed to paying a fee. That is one example where the existing market is sending the wrong signals. It is saying that something is a burden on the system whereas in reality it is an enabler of the system. I am not sure if that fully answers the Deputy’s question. I appreciate it is a slightly indirect answer.