ESO recommends cuts to capacity auction targets

National Grid Electricity System Operator (ESO) has called for reductions to the procurement targets for all three of the Capacity Market auctions due to take place in 2020.

Most notably, the ESO has recommended the target for the year-ahead (T-1) auction for delivery in 2020/21 be reduced from 300MW to zero.

If adopted, the target would still allow for the procurement of up to 300MW of capacity as the actual amount bought during auctions varies depending on the clearing price. The lower the price, the more is procured, and vice versa.

The ESO had already called for the target to be set to zero in its annual electricity capacity report after its calculation for the least worst regret outcome suggested a figure of minus 1.3GW.

However, the interim energy minister at the time, Chris Skidmore, set the target at 300MW in July, stating that the body had failed to properly account for non-delivery risks relating to plant outages and the suspension of the capacity market.

In its latest recommendations for the auction parameters, the ESO said it has received no updated information from ministers in the meantime on the alleged non-delivery risks.

It also revealed it has lowered its figure for the least worst regret outcome by 800MW to minus 2.1GW.

The ESO applied a 400MW reduction to account for the amount of capacity with Short Term Operating Reserve (STOR) contracts which had not prequalified for the auction. Providers cannot secure both STOR and capacity market contracts for the same period.

It applied a further 450MW reduction to reflect previously unaccounted for capacity which will be operational during the delivery year but has opted out of the auction, as well as a 50MW decrease due to the early commissioning of plants.

These cuts were offset somewhat by a 100MW increase resulting from the prequalification of autogeneration capacity had been assumed would opt out of the auction.

The ESO also recommended a 200MW decrease in the procurement target for the three-year-ahead (T-3) auction to 44GW. It said this would account for the 100MW of autogeneration, which defied assumptions by prequalifying for the auction, minus the nearly 300MW of capacity with long-term STOR contracts, which did not prequalify.

For the same reasons, the body called for a 200MW decrease in the target for the four-year-ahead (T-4) auction to 43.3GW.

The current targets for the T-3 and T-4 auctions were set in line with the ESO’s original recommendations. The T-3 auction is scheduled to begin on 30 January, the T-1 auction on 6 February and the T-4 auction on 5 March.

They will be the first  auctions in which wind and solar capacity is eligible to bid, albeit with severe de-rating factors.