Capacity auction target increase offers lifeline to coal

The decision by energy minister Anne-Marie Trevelyan to raise the target for the upcoming year-ahead (T-1) Capacity Market auction may offer a lifeline to coal, in particular, EDF’s West Burton A power station, which has no contracts for subsequent winters, an analyst has suggested.

“It could be good news for coal,” said Cornwall Insight senior modelling consultant Tom Edwards.

The target for the auction was originally set at 400MW but was recently raised more than six-fold to 2.4GW on the recommendation of National Grid Electricity System Operator (ESO), primarily due to a significant decrease in the amount of generation expected to be running in the winter of 2020/21.

This included a 1,700MW reduction in the expected availability of coal and biomass generation based on the average during the recent raft of Electricity Margin Notices issued by the ESO.

Speaking to Utility Week, Edwards said the first 300MW of the target will almost certainly be taken up by the East West Interconnector to the Republic of Ireland – the only one that is bidding: “Interconnectors are guaranteed because they’re not generators. They always make money whatever way the power flows.”

However, the remainder would be up for grabs by the roughly 2.1GW of coal capacity that has prequalified – almost 1.7GW from the four units at West Burton A and 435MW from one unit at Uniper’s Ratcliffe plant.

With regards to West Burton A, Edwards said: “All signs indicated that this winter was going to be it. That’s all it was ever going to be.”

“This is probably the last chance short of an intervention by National Grid or the government,” he added.

He said: “I don’t think the coal is by any means guaranteed to win an agreement because it depends on how all the other participants play in but it’s definitely a good sign for them.”

Edwards identified coal’s main sources of competition as demand-side response and gas engines. He said some new-build gas engines with contracts for later years could be commissioned early if the price is right: “It depends on the extent to which they are hurting from the embedded benefits changes.

“They might have bid into previous years perhaps on the expectation that they would be slightly better off than they otherwise are thanks to the changes that have happened in between.”

“Everyone has had a pretty good year in the balancing mechanism,” he noted. “It’s been pretty good in terms of scarcity prices and things like that.”

There are now only three coal plants still operating in Great Britain – Ratcliffe, West Burton A and the two remaining units at Drax’s power station of the same name.

Drax already has Capacity Market contracts for both its coal units next winter but has pledged not to generate any power from them after this March other than to fulfil its agreements.

Ratcliffe currently has contracts covering three units next winter, two units in 2022/23 and three units in 2023/24, and as such, is expected to be last of the coal plants to close.

If West Burton A does win contracts for 2021/22, Edwards believes it is unlikely to generate for many hours: “I wouldn’t expect their running patterns to be significantly different from this year, which was nothing in the summer, waiting for cold evenings in the winter.”