Through the auction, government has procured 49.26GW of capacity at a clearing price of £19.40kW.
This will cost a total of £0.96bn (in 2012 prices), which works out at around £11 for the average household.
However, previous price modelling by DECC shows that if a bill payer looked back over their bill in 2030 for the last 15 years then the impact of the Capacity Market would average out at £2 on their annual bill (in 2012 prices). This is because DECC expects average wholesale prices to come down with the security of a capacity market, compared to a world without one.
Nothing will be paid by consumers before 2018/19.
The Capacity Market is a bit like an energy guarantee. It works by making sure that there is enough capacity available to meet peak electricity demand in the future.
The first stage of this process was to estimate how much capacity will be needed in 2018/19 – the first year the Capacity Market will be running. Electricity providers then bid into the capacity auction, promising if they win a contract that they will be available to provide electricity when needed. In return, they will now receive a steady payment on top of the electricity that they sell.
Perth-based SSE plc secured agreements to provide a total of 4,409MW (megawatts) of de-rated electricity generation capacity from October 2018 to September 2019 at a price of £19.40/kW (kilowatt). The SSE capacity which has secured an agreement comprises:
- 849MW of hydro electric and pumped storage plant;
- 2,266MW of gas-fired power generating plant, and
- 1,294MW of coal-fired power generating plant.
However, this means that SSE de-rated capacity totalling 2,796MW did not secure an agreement. This included power plant at Abernedd, Ferrybridge, Peterhead, and one unit at Fiddler’s Ferry.
Martin Pibworth, Managing Director, SSE Wholesale, said: “The Capacity Market was designed to keeps the lights on at the lowest cost to the customer. This should ensure that generators are fairly remunerated if they discharge their obligations and provide the capacity that’s needed to ensure the system is able to meet the peaks in customers’ requirement for electricity.
“We are pleased the majority of SSE’s plant has been successful in the first Capacity Market Auction.
“Whilst some of our plant was unsuccessful in gaining a contract this time round it doesn’t affect existing operation at our sites. The Capacity Market is just one of multiple options available to existing plant. We will continue to analyse market conditions and opportunities for all our plant going forward.”
Last night, Ed Davey, UK Energy Minister, said: “This reverse auction ensures consumers get the best deal possible as it drives bids down to the lowest level possible.
“These auction results ensure that sufficient UK generating existing capacity will remain open at the end of the decade, as well as unlocking new investment – including a large independent gas plant at Trafford.
“This is fantastic news for bill-payers and businesses. We are guaranteeing security at the lowest cost for consumers. We’ve done this by ensuring that we get the best out of our existing power stations and unlocking new investment in flexible plant.”
“The Capacity Market auction is just one part of the government’s strategy to drive new investment and secure energy supplies in the short, medium and long-term. We estimate that more than £45bn was invested in electricity generation and networks between 2010 and 2013.
“And National Grid has already bought three additional power stations to keep in reserve for this winter and has begun buying extra capacity for next winter.”
The full results are available on National Grid’s website.