Another record high price expected in T-4 capacity auction

The next four-year-ahead (T-4) Capacity Market auction is expected to clear at a record high price for the third year running after the margin between prequalifying capacity and the procurement target fell to its lowest level since the auctions began in 2014.

Although the target has been raised slightly to 43GW, according to analysis by EnAppSys, 45.2GW of de-rated capacity has prequalified for the auction in February next year, leaving a margin of less than 2.2GW – or 5%.

This is less than half of the roughly 5.2GW margin for the T-4 auction earlier this year, which cleared at a record high price of £63/kW/yr. More than 47.6GW of de-rated capacity prequalified for that auction, for which target was set at 42.4GW.

In practice, EnAppSys said the margin for the next T-4 auction for delivery starting in 2026/27 is likely to be even tighter than the 2.2GW figure suggests, as 2.4GW of de-rated capacity has conditionally prequalified. Some of these units may drop out if they fail to meet their prequalification conditions.

The market intelligence firm said much of the reduction can be attributed to a decline in the amount of gas generation prequalifying, which has fallen by almost 3GW.

The company noted that the Eggborough 1 and 2 combined-cycle gas turbine (CCGT) units both won 15-year contacts in the last auction, meaning their combined de-rated capacity of approximately 1.5GW will absent from the next one. The de-rated capacity of prequalifying gas reciprocating engines also dropped by more than half.

By contrast, EnAppSys expects another price drop in the next year-ahead (T-1) auction, despite a substantial increase in the procurement target from 5.8GW to 7.4GW. The de-rated capacity of prequalifying units has also swollen significantly from less than 6.7GW to around 9.8GW, meaning the margin has more than tripled from around 0.9GW to 2.8GW – or 38%.

The firm said the amount of nuclear capacity set to enter the auction has almost doubled compared to the last auction when only three units prequalified – two from Hartlepool and one from Heysham 1. They will be joined by another three – a second unit from Heysham 1, a unit from Heysham 2 and a unit from Torness.

The Hartlepool and Heysham 1 power stations were both granted life extensions earlier this year, whilst the Torness unit is returning to the T-1 auction after previously failing to secure a contract in the corresponding T-4 auction for delivery in 2024/25.

EnAppSys said there has also been a substantial increase in gas generation prequalifying for the T-1 auction due to the re-entry of Calon Energy’s mothballed Sutton Bridge and Severn One CCGT units, neither of which were present in the previous auction.

The T-1 auction earlier this year cleared at £60/kW/yr – down from a record high price of £75/kW/yr in 2022. Prices in both the T-1 and T-4 are capped at £75/kW/yr – the starting point in the descending clock style auctions.