Capacity Market auction clears at record high

The latest year-ahead Capacity Market auction has cleared at a record level of £75/kW, sparking claims that consumers have “overpaid for capacity”.

Total available capacity of just under 5GW fell short of the target of almost 5.4GW, meaning all bidders were successful at the cap price. This was significantly higher than the £45/kW clearing price seen in the previous T-1 auction last March.

Successful bidders represented 1.4GW of new-build capacity and 3.1GW of existing units, according to the preliminary results by National Grid Electricity System Operator (ESO). In total 226 units won contracts.

A breakdown of fuel types shows gas plants dominating the auction, accounting for 42% of the total agreements awarded. This was followed by demand side response and then battery storage.

Market data analysts EnAppSys pointed out that the loss of three large gas-fired plants when Calon Energy went into administration had driven up prices in the current auction.

It cited some notable beneficiaries, including some large units that faced possible retirement, including SSE’s Keadby 1 and Medway and ESB’s Corby 1, which between them have a capacity of more than 1.7GW.

EnAppSys director Phil Hewitt said: “The high clearing price keeping units online that may otherwise have been retired bodes well for the stability of the market this year in comparison to the winter just passed.

“It is unlikely that clearing prices as high as this will be repeated in the near term as the high price was driven by very particular events. This will have brought forward the start dates for several new build projects to make the most of the high prices.

“Many people in that auction would have settled for a lower price. It feels like the billpayers may have overpaid for capacity.”

A Department for Business, Energy & Industrial Strategy spokesperson said: “The capacity market is worth paying for to provide secure and affordable electricity.”