Capacity market auction boosts battery storage projects

The results of the first of this winter’s capacity market auctions have been hailed as a major boost for the rapidly developing battery storage and demand side response (DSR) sector.

The T-4 auction for delivery in 2020/21 cleared with provisional agreements for 52.43GW of capacity at a price of £22.50/kW/yr.

The results included contracts for 3.2GW of energy storage, or just over 6% of the total and 1.4GW of DSR capacity.

The clearing price was in the middle of expectations just before the auction, although below predictions from before the pre-qualification showed how many projects were planning to bid. The Government said it has been estimated that the Capacity Market will have a net cost of around £2 per year on average for bill payers over the long-term.

Business and Energy Secretary Greg Clark welcomed the role battery storage and DSR will play in helping the shift towards a more flexible energy system.

“Our homes and businesses need an electricity supply they can rely on all year round. We’ve provided them with that certainty, at a low cost to bill payers, years in advance.

“Technological innovation, as part of our low carbon future, will create jobs and opportunities across the UK. We are rebuilding an archaic energy system, bringing forward brand new gas power and innovative low-carbon capacity like battery storage to upgrade our energy mix.
“This is about more than just keeping the lights on. A modern, reliable, and flexible electricity system powers the economy and Britain’s future success.”

‘Much needed certainty for battery projects’

About 500MW of new-build battery storage projects were successful in the auction which saw them competing for 15-year contracts for the first time.

SmartestEnergy’s Vice-President of Demand Side Management Robert Owens said the outcome “gives some much-needed certainty to these projects”.

UK Power Reserve was one of the winners of storage capacity in the 2016 auction.

Chief Executive Tim Emrich said the technology “will become a critical part of the UK energy mix in the coming decade”.

Overall, the auction saw a tripling in demand side response participation. SmartestEnergy secured 90MW.

‘Gigawatts of potential untapped’

The Association for Decentralised Energy (ADE) welcomed the auction result, saying it reflected the growing role of demand response and on-site generation in the energy system. However, it also said the opportunity remains much greater, with only 16% of existing CHP capacity participating in the auction and “gigawatts of DSR potential remaining untapped”.

ADE Director Tim Rotheray said:

“As coal continues to come under pressure to close in response to our climate change ambitions, it will be more important than ever that it is replaced by lower-carbon, user-led solutions like combined heat and power and demand side response.

“By increasing their participation, we can secure lower costs for consumers and ensuring it is businesses and local energy users that benefit from Capacity Market funding, contributing to industry and wider businesses competitiveness. Government should allow all participants to access the same lengths of contract and should simplify the rules to better allow industrial manufacturers and other business to more easily participate.”

But Dr Jonathan Marshall, energy analyst at the Energy and Climate Intelligence Unit (ECIU) said that the Government “may need something different from the capacity market in its current form” to incentivise new gas build.

He said the price had settled too low to incentivise building of more than one new medium-sized CCGT gas plant,” in contrast to ministers’ apparent wishes to have a whole batch coming through en route to their goal of 26GW new build by 2030”.

“The perversity of running a technology-neutral capacity market is shown by the fact it has not incentivised a slew of new large gas plants while it is rewarding old coal plants for staying open until at least 2020,” said Marshall.

The results of the auction will be confirmed by the Secretary of State for Energy on 20 December. The results of the T-1 Capacity Market Auction will be reported on the 31 January and the Transitional Arrangements (TA) auction on the 22 March.

> Read more on the auction results here

> Read SmartestEnergy's blog here