Energy minister sets capacity auction targets

Energy and clean growth minister Claire Perry has written to National Grid to give her final decision on the procurement targets for the next round of capacity market auctions.

According to the letter, 46.3GW of de-rated capacity will be purchased in the four-year-ahead (T-4) auction for delivery starting in 2022/23 and 4.6GW in the one-year-ahead (T-1) auction for delivery in 2019/20.

The decision is in line with the recommendations made by National Grid in its annual electricity capacity report, although Perry held back 400MW of the suggested target for the T-4 auction to be procured later on in the T-1 auction for delivery in 2022/23.

National Grid proposed a target of 46.7GW for the T-4 auction – a 3.8GW reduction when compared to the projection from last year’s report.

The system operator said the total capacity requirement had fallen by 1.6GW, partly due to 1GW decrease in projected peak demand, which was offset by a 0.6GW increase in the amount of reserve capacity deemed necessary to deal with unplanned outages.

The remaining 2.2GW reduction was the result of a net increase in the assumed volume of capacity which is ineligible to participate in capacity auctions. It included 2.2GW of new renewable capacity.

At 4.6GW, the recommendation for the T-1 auction was 2.1GW higher than the 2.5GW set aside by the energy secretary in 2015 when deciding on the target for T-4 auction for the delivery starting in 2019/20.

Despite buying 1.7GW of surplus capacity in the T-4 auction and lowering its projection for peak demand by 1.4GW, National Grid raised the total capacity requirement by 4.1GW.

This was mainly in response to the known non-delivery of 4.9GW of capacity contracted through previous T-4 auctions. There was also a 0.5GW increase in the need for reserve capacity.

The increase in the total requirement was counteracted by a 2GW increase in the assumed amount of ineligible capacity, consisting mainly of new renewable capacity such as biomass and wind.

The report also featured National Grid’s proposed de-rating factors for the auctions. De-rating factors reflect the expected availability of different technologies during stress events and are typically based on their historical performance.

They are expressed as percentages, which are then applied to the nameplate capacity of auction participants to give their de-rated capacity. Participants bid, and are paid, according to their de-rated capacity.

The most notable changes suggested by National Grid were to the de-rating factors for batteries.

Ahead of the most recent set of auctions the Department for Business, Energy and Industrial Strategy made huge cuts to the de-rating factors for all but the longest-range batteries.

Those with shortest discharge duration saw their de-rating factor reduced by more than four fifths from more than 96 per cent to around 21 per cent in the T-1 auction and just under 18 per cent in the T-4 auction.

National Grid has now recommended making further cuts across the board, albeit far less severe than before. As part of its proposals, the de-rating factor for the shortest-range batteries would be lowered to 17.5 per cent for the T-1 auction and less than 15 per cent in the T-4 auction.

Proposed de-rating factors in upcoming auctions

Source: Electricity Capacity Report 2018, National Grid

Perry also announced changes to the de-rating factors for interconnectors based partly on the advice from National Grid’s report.

The average de-rating factor for the T-4 auction across all eligible interconnectors fell from 63 per cent to 56 per cent, driven by large reductions to those for the Nemo, BritNed and East West interconnectors to Belgium, the Netherlands and the Republic of Ireland respectively.

De-rating factors for interconnectors in T-4 auctions

Aurora Energy Research recently called on the government to re-visit the de-rating factors for interconnectors following their success in the latest T-4 auction in February.