Competition ‘heats’ up for the next Capacity Market auctions

With generators, storage, and demand-side participants all competing together in the next Capacity Market (T-1 and T-4), they could be the most competitive auctions yet. Angus Widdowson looks at the opportunities for CHP (Combined Heat and Power) plants and the potential revenues available.

More than 2,000 UK businesses are already using CHP but with many of these plants only required for back-up generation, they are not being fully utilised. There’s an opportunity for businesses to access an additional revenue stream by entering their CHP into the Capacity Market, providing more flexibility and support to the grid.

The next auctions are scheduled for early next year, with 6GW available in the T-1 auction for Winter 2018/19 and 50.1GW in the T-4 auction for Winter 2021/22.

The auctions provide revenue opportunities for businesses with the ability to reduce their demand by participating in Demand Side Response (DSR), and for controllable generation that can ‘turn-up’ during a grid stress event. 

For example, a 1MW generator with a T-1 contract for this winter could make in the region of £6,950 (based on the T-1 auction price of £6.95/kW) in CM payments.

Whilst the prices for the next auctions are very unpredictable, the phased removal of the triad benefit to generators is expected to boost future CM prices as generators seek to replace lost revenue.

We could also see less competition from storage capacity following the government’s proposed changes to how the generation classes of battery storage are de-rated within the CM. The proposed changes aim to ensure battery storage capacity is ‘rewarded appropriately’ which could impact the value of CM revenues for storage participants.

In previous auctions battery storage has been big competition, securing 501MW in the last T-4 auction. The government’s recent rule change for storage capacity could open the door for smaller, more flexible and responsive generation such as CHP, in future auctions.

The 10-week pre-qualification window for the CM opened on Monday last week (24th July) and will run until 29th September. Once the pre-qualifications have been assessed, industry analysts will start to publish their view on how the prices may outturn.

Now is the time for businesses with flexible generation and CHP plants to explore the opportunities for additional revenues in the Capacity Market. SmartestEnergy operates an end-to-end process, managing our customers’ flexibility on their behalf. We’re currently talking to generators and demand-side participants about entering the Capacity Market for Winter 2018, so act now to take advantage of an additional revenue stream.

Contact SmartestEnergy to discuss CM participation
Read more about the opportunities for CHP plants in ADE’s latest report