Letter from the Editor: Generators take aim at interconnectors

A shock low clearing price of £8.40/kW in the latest four-year-ahead capacity auction took many market participants and commentators by surprise.

Recovering their poise, officials at BEIS were quick to crow that the result proves the capacity market (CM) is working effectively. Elsewhere, however, the clearing price has reignited a long-smouldering grudge between owners and developers of indigenous generation – especially new gas – and interconnectors, which bid enthusiastically in the recent auction, securing agreements for a combined 2.2GW of capacity.

Indigenous generators feel hard done by because, they say, interconnectors do not play on a level playing field. They are not subject to the same transmission charges or carbon taxation, for example. At the same time, they have generous de-rating factors and access to a wider array of revenue streams, including secure cap and floor arrangements for new interconnectors.

This distortion should be remedied with swift and robust action, similar to that taken by Ofgem last year to cull benefits for embedded generation, say the complainants. Nor are they above pulling on the heartstrings of Brexiteers, suggesting government needs to do some soul searching about the extent to which it is really happy to rely on foreign power sources in the future.

Advocates of the CM counter that indigenous generators are sore losers. It’s not the fault of the mechanism that market conditions are simply not right yet for bringing forward new gas-fired generation, they argue. They add that enough has already been done to make conditions favourable for combined-cycle gas turbine investors.

But rather than pushing for tweaks to CM rules, is there another, bolder way to resolve dissatisfaction with the treatment of interconnectors in auctions?

Next year, France will trial a model for securing future ­capacity that excludes interconnectors as a standalone technology and allows foreign generators to bid in. This rightly recognises that interconnectors are not generators, merely conduits for power, and could open up a bigger realm of opportunity for capacity agreements to prospective new generation developers.

Brexit negotiations may yet make a pan-European capacity regime a pipe dream. But France’s experiment in 2019 will be an interesting proof of concept. It only remains to be seen whether international generators respond competitively to the call.