Capacity auction sees price rebound

The Capacity Market has witnessed a price rebound, with the latest T-4 auction for delivery starting in 2023/24 clearing at £15.97/kW.

It is the highest price since the T-4 auction in 2016, which finished at £22.50/kW. Prices have since languished in the single digits, bottoming out at £0.77/kW in the delayed T-1 auction held over the summer.

Agreements were secured by around 43.7GW of de-rated capacity, of which existing generation accounted for 34GW and new-build generation for 1.8GW. The latter included SSE’s Keadby 2 combined-cycle gas turbine (CCGT) project (804MW) as well as 681MW of reciprocating engines, 105MW of storage and three onshore wind farms (10.5MW).

Also successful were three new interconnectors – the ElecLink power line (690MW) that will be laid through the Channel Tunnel and National Grid’s IFA2 (1.23GW) and North Sea Link (715MW) cables to France and Norway respectively.

Unproven demand-side response won contracts for more than 1GW of de-rated capacity, whilst proven DSR won 165MW.

Results breakdown

The Ratcliffe-on-Soar power station continued to cling on, with Uniper securing agreements for three of its four coal units. The firm won contracts for two of the four in the T-3 auction at the end of January.

It was the only coal-fired power station remaining at the end of the T-4 after EDF’s West Burton A plant once again exited without securing agreements for any of its units.

A spokesperson for the company said it is reviewing the long-term future of the power station but has not yet reached a decision.

They said the power station will fulfil the contracts it already has in place for three of its four coal units for the next delivery year (2020/21) and that Uniper would willingly comply with the government’s pledged phaseout of coal generation by 2024.

In line with their scheduled closure in 2023, EDF did not enter its Hunterston B or Hinkley Point B nuclear power stations into the auction. But it was also unable to secure agreements for its Heysham 1 and Hartlepool plants which were due to close the following year.

Existing generation accounted for around 8GW – more than half – of the 15.7GW of de-capacity that exited the auction. The first Keadby gas plant was among the nearly 3GW of existing CCGT capacity that dropped out, despite the increased price on offer.

Drax failed to win new-build contracts for any of its four open-cycle gas turbine (OCGT) projects – Progress, Hirwuan, Millbrook and Abergelli – or its Damhead Creek 2 CCGT.

The company recently announced plans to cease generation from its last two coal units from March 2021 but maintain their availability until their existing capacity contracts expire in September 2022.

Speaking to Utility Week at the time, Drax Group chief executive Will Gardiner said the firm was also reconsidering its plans to replace them with new CCGTs. He said capacity market prices may not be sufficient to justify the investment, especially when the government’s decision to grant planning permission is being challenged in court.

The UK arm of Czech utility Energeticky a Prumyslovy Holding likewise failed to secure an agreement for its King’s Lynn B CCGT, as did Carlton Power for its Trafford CCGT.

The other losers included 1.72GW of new OCGTs, 666MW of new reciprocating engines and 203MW of new storage, as well as 458MW of DSR and a small onshore wind farm.

Capacity procured across all auctions to date

Note: All capacity figures quoted in this article are for de-rated capacity.