Posted on: 13/02/2018
The Capacity Market T-4 auction cleared at £8.40/kW/year, a significant fall from the £22.50/kW seen last year.
The auction secured 50.4GW of capacity for Winter 2021/2022, with existing generation winning the lion’s share.
The biggest winners were existing CCGT gas (23GW) and nuclear (7.9GW), and interconnectors also fared well with 4.6GW of capacity, including 2.15GW of new build.
Pre-auction expectations around the clearing price from industry experts had ranged from £25/kW/year to £17/kW/year.
Boz Bozhkov, Head of Markets for SmartestEnergy, said: “One of the drivers of this low price appears to be the willingness of nuclear and coal to accept far lower prices than many of the other participants, dragging the price down with them.
He added: “If the 5GW of EDF nuclear and 2.6GW of coal were excluded, could the price have cleared close to £25/kW/year?”
Limited success for DSR and battery storage
Just 1.2GW was secured by unproven DSR, which is only half of the pre-qualified capacity this year and only 2% of the total awarded capacity. SmartestEnergy won 100MW of all new DSR capacity.
Battery storage won 151MW of capacity, however almost 1GW exited the auction when the price dropped due to cost associated with building new battery storage projects.
Energy and Clean Growth Minister Claire Perry welcomed the outcome and said: “Getting the best deal for energy billpayers is central to our Industrial Strategy and the Capacity Market is helping to drive competition, protect customers and ensure security of supply.
“The record low cost of £8.40/kW ensures that we have enough energy to provide homes and businesses in Britain with secure, reliable electricity supplies for 2021/22.”
But the results of the latest auction have led to calls for the Capacity Market to be redesigned to encourage more low carbon generation and flexibility.
Chaitanya Kumar of the Green Alliance said: "Unfortunately, the capacity market is still failing to support flexible technologies like battery storage in favour of large centralised fossil fuel generation.
It's time the government revisited the rules so the market can support the low carbon energy system we need for the future."
The results are provisional until confirmed by Energy Secretary Greg Clark.