Capacity Market T-1 auction closes at lowest price yet

After a three-day auction of fourteen rounds, the Capacity Market T-1 auction cleared at £6/kW/year, the lowest price to date. Boz Bozhkov, Head of Markets, comments on the provisional results.

The Capacity Market T-1 auction closed yesterday at £6/kW/year, securing 5.8GW of capacity for Winter 2018/2019.

The final clearing price was higher than we expected, however it is still the lowest we have ever seen and surprisingly close to last year’s price of £6.95/kW/year.

We predicted the price would actually drop a lot further as 10.6GW, more than double the available 4.9GW of capacity, competed in the auction.

Demand Side Response (DSR) won a total of 430.5MW capacity and only makes up 7.45% of the capacity procured. SmartestEnergy secured 160MW of the total unproven DSR contracts awarded.

Battery storage won just 97.5MW of capacity, amounting to 2% of the total awarded.

Many battery storage projects were unsuccessful in securing additional revenue via frequency ancillary services. Therefore, they were unable to accept such low prices offered in the Capacity Market auction.

In fact, almost 70% of the new build storage capacity exited the auction before it cleared.

Many new battery storage projects just didn’t find the much-needed financial support and confidence to accelerate and build for the next delivery year. We would expect that the T-4 auction will be more forgiving and would offer the support for these important new assets.

The majority of contracts were awarded to existing generators, including gas (3,923MW), waste (227MW) and coal (438MW) - after 86% of coal was rejected.

The low auction price, mostly a result of significant existing generation, proved to be unacceptable to much of the cleaner new technologies. The Capacity Market seems to struggle to incentivise new capacity and new, cleaner technologies. 67% of new battery storage projects were unable to get a contract; along with 62% of new gas plants and 73% of DSR found the price unacceptable. These are the exact technologies that should be part of our energy mix.

The confirmed results for the T-1 auction will be released on the 13th February. In the meantime, the T-4 auction starts on the 6th February to secure 50.1GW capacity for delivery in 2021/22. Last year’s T-4 auction closed at £22.50 so it will be interesting to see the outcome of this year’s auction next week.

> See the provisional results
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About the author

Bozhidar is responsible for analysing market opportunities to help asset owners maximise revenues. His role includes the continued development of processes and systems to enable customers to always optimise their positions and he also liaises with National Grid and DNOs to ensure access to all relevant opportunities. Bozhidar joined SmartestEnergy from KiWi Power where he was Head of UK Operations. He holds a Bachelor of Business Administration from Northeastern University, USA and a Master of Science in Economics and Policy of Energy and the Environment from University College London.

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