National Grid power capacity auction falls short of forecasts

The UK’s latest auction for back-up electricity cleared well below expectations, casting doubt on how much new capacity will be built to avoid winter supply shortages in the future.

The National Grid’s website showed Thursday’s auction for 2021-22 supply cleared at £8.40 per kilowatt (kW)/year, below the £15 to £25 kW/yr range which analysts had forecast.

The auction results shows the majority of capacity agreements – more than 45% – were awarded to combined cycle gas turbine units. However, CCGTs, mostly new builds, were also the largest group of generation capacity units which exited the auction above the clearing price.

Agreements went 86% (43.3 GW) to existing generation, 762 MW to new build generation and 2.155 GW to new build interconnection.

Natural gas dominated by fuel type, cornering 29.6 MW of agreements, followed by nuclear with 7.9 GW.

Just 2.565 GW of coal won through across two sites, with agreements for three of four 500 MW units at Uniper’s Ratcliffe-on-Soar plant and for two units at Drax (560 MW and 650 MW).

Lawrence Slade, chief executive of Energy UK said: “This Capacity Market auction clearing low once again proves that competition is successful at providing security of supply at the lowest cost to consumers.

“This auction along with those preceding it have supported innovative, emerging technologies whilst ensuring we get the best value from existing assets.

“We will continue to work with government as the Capacity Market evolves, including the possible inclusion of renewables in future auctions, and in the forthcoming review of Electricity Market Reform.”

But David Bowman, managing director of the N-ERGY consultancy, said these results are confusing for those interested in the capacity market due to the lack of consistency between the government’s clean growth and coal-free strategies and the actual support and incentives provided for renewable energy or battery storage.

He said: “As advocates of renewable energy and battery storage, it feels like these future-proof solutions for energy storage are being disregarded with gas being the safer choice for the government. It clearly wants to achieve a low-carbon energy mix but wants the private sector to pay the price.

“The provisional results of the recent capacity market auctions are worrying for many reasons.

“The clearing price has hit rock-bottom reaching £6.00 per kW per year for T-1 and £8.4 for T-4 (down from £18-£22.5). Gas came out on top in both auctions of the overall fuel type with 75.55% in T-1 and 58.74% in T-4. Coal came second in T-1 with 7.57% and fourth (after Nuclear and Interconnector) in T-4 with 5.09%.

“Battery storage was only awarded 1.69% in T-1 and 0.3% in T-4 and similarly, 0.08% went for solar in T-1 and less than 0.01% in T-4 with only one awarded Capacity Market Unit (CMU) in each auction.

“Gas is considered a low-carbon fuel, but it is still un-renewable and not as green as renewable energy. Solar and battery storage percentages are very low and will make it harder to achieve a low-emission energy mix.”

12 Feb 2018