National Grid has approved 52.4GW of derated power generation capacity in its pre-qualification round for the UK’s first capacity market auction, set for this December.

The pre-qualification round follows confirmation from the Department of Energy and Climate change (Decc) in June that it would hold an auction to secure 50.8GW, or 80 per cent of the UK’s peak electricity demand, for delivery in four years’ time.

The transmission system operator said that 10.1GW in addition to the 52.4GW has provisionally qualified subject to submitting further documentation, to significantly exceed the auction’s needs by almost 20 per cent.

National Grid said that 8GW of derated generation capacity opted out of the capacity market process, meaning they will not participate in the December auction. However, this does not mean the plant cannot continue to participate in the market.

The most high-profile of the opt-outs includes Scottish Power’s 2.4GW Longannet coal-fired plant.

Decc minister Ed Davey has previously described the capacity market as “the final piece of the jigsaw” in terms of safeguarding power capacity in the face of dwindling supply margins as older plant closes and new low carbon investment begins to come forward.

Although analysts have speculated that the auction could favour existing coal-fired power over investment in cleaner gas-fired power, there have been notable exceptions in the pre-qualifying results.

Independent generator Carlton Power will move forward the plans for its Trafford Power combined cycle gas turbine (CCGT) and has bought a stake in General Electric’s Thorpe CCGT, both of which have pre-qualified for the auction.

In addition, Intergen’s two development projects, Gateway Energy Centre and Spalding Energy Expansion, totalling 1.8GW, were also successful at the pre-qualifying round.

National Grid said that almost 8GW of new-build has qualified for the auction, and that this could increase following the appeals procedure. Whether new-build is able to trump the bid of existing plant will be determined on the specific economics of each project, analysts have said.

“It will be interesting to see how the auction dynamics work between plant that is planning refurbishments and new plant. The auction could prove to be more competitive than previously thought as these types of plant will be critical in determining the level of capacity payments,” said Baringa partner Philip Grant.

The results of the auction will be announced by Decc on 5 January 2015.

Market view:

“Capacity market pre-qualification represents a positive step for Intergen and for the UK towards delivering a secure and flexible generation fleet in order to keep the lights on.”

Mark Somerset, Intergen’s European general manager, on the inclusion of five of the company’s gas-fired power station projects, of which two are under development

“These handouts look very much like the ‘perverse fossil fuel subsidies’ lambasted by David Cameron at the UN Climate Summit in New York. Ministers are effectively forcing energy customers to bankroll the massive damage to our health and climate caused by coal. No wonder they waited until 6pm on a Friday to bury the bad news.”

Lawrence Carter, Greenpeace UK energy campaigner

“Coal-fired generation still accounts for 40 per cent of the UK’s electricity. Those plants already exist, their construction costs are sunk, and so they will be able to underbid developers of gas-fired power stations that have yet to be built. Whereas the carbon price floor will drastically reduce coal plant run hours, the capacity market now anchors their role as back-up generation.”

Monne Depraetere, analyst at Bloomberg New Energy Finance

“We do not want to close Longannet, and I would stress that there are no plans to do so. We have invested over £200 million in recent years to improve both environmental and operational performance at Longannet, and we want to secure a longer-term future for the station. However, to avoid closure within the coming years, changes to the plant’s financial situation must be achieved. The current market conditions, predominantly the transmission charging rules, mean that we simply can’t justify entering Longannet into a process which is four years away and will then only offer one year of certainty.”

Neil Clitheroe, Scottish Power’s chief executive of energy retail and generation, on the company’s decision not to add the 2.4GW Longannet plant to the capacity auction

Utility Week view

The decision by Scottish Power to opt its 2.4GW Longannet coal-fired power plant out of the capacity auction has raised both eyebrows and suspicions, writes Jillian Ambrose. The company has already declared the plant available to National Grid for winter 2018/19, and says it has no plans to close it, so the decision to turn down “free money” (as one market participant put it) seems an odd one.

The generator took the opportunity to complain about the transmission charging regime, which it says penalises Longannet to the tune of £40 million a year, but withdrawing the plant from the auction seems a strange way to protest.

Perhaps the generator just needed to balance the risks against the returns and, given the age of the station, the four-year delay until delivery as well as the transmission costs, it may be safer to opt out than to be liable for non-delivery penalties.