Early Auction for Capacity Market enters second day

The Early Auction for the Capacity Market has entered its second day.

The fifth round of bidding, covering the price range £55 to £50 per kilowatt per year, began this morning at 9am with around 5GW of capacity still to drop out.

The Early Auction (EA) is conducted in a “Dutch-style” descending clock format, whereby bidders choose whether to stay or go as the asking price is gradually reduced. The auction ends – or clears – once the remaining capacity matches the procurement target. All remaining capacity will receive an agreement at the clearing price.

Delivery body National Grid confirmed the procurement target at 53.6GW in November. In practice the target actually it varies slightly according to the clearing price – extra capacity is purchased at lower prices.

Around 59.3GW entered the auction yesterday, leaving roughly 6GW of surplus capacity to drop out. The surplus capacity had fallen to around 5GW as the auction resumed this morning.

At the time of publication, the sixth round of bidding, covering the price range £50 to £45 per kilowatt per year (/kW/yr), had just kicked-off. The volume of surplus capacity remained 5GW, according to National Grid, although the figures are rounded up to the nearest gigawatt.

Consultancy firm Smartest Energy has told Utility Week it expects the auction to clear at less than £25/kW/yr, putting it in line with the most recent four-year-ahead (T-4) auction in December, which cleared at £22.50/kW/yr.

Early Auction for the Capacity Market: Progress so far

Source: National Grid

Plans for the EA were first outlined by the government in March as part of an overhaul of the Capacity Market. It was introduced to bring forward the beginning of the mechanism by a year, thereby enabling the Contingency Balancing Reserve to close a year early.  The auction, which began yesterday, will secure backup capacity for the winter of 2017/18.

The Capacity Market has faced scrutiny in the national media in recent days because of the subsidies which are likely to be won by coal-fired plants. Scottish Power, having closed its last coal plant in March 2016, reiterated its call for coal generation to be barred from the mechanism.

“There is a kind of paradox going on here where we have a government that is saying we want to take coal plants off the system… but inherently what these auctions are doing is… actually encouraging coal plants to stay on the system,” Scottish Power chief corporate officer Keith Anderson, was quoted as saying in the Financial Times.

A spokesperson for BEIS responded: “We are already seeing a significant reduction in the role that coal will play in the Capacity Market year on year; with current auction results showing its use will fall by over 30 per cent between 2018 and 2021.

“This government has been clear that unabated coal should have no place in our future energy mix, and we have set out our proposals to phase it out by 2025.”