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Business and energy secretary Grant Shapps has confirmed the procurement targets for the upcoming Capacity Market auctions due to take place in February.
The target for the four-year-ahead (T-4) auction for delivery starting in 2026/27 has been boosted by 1.5GW to 43.9GW of de-rated capacity.
In July, energy minister Greg Hands set an overall target for 2026/27 of 43.9GW but put aside 1.5GW to be procured through the year-ahead (T-1) auction for that delivery year, leaving 42.4GW to be procured in the T-4 auction.
In line with the recommendations of National Grid Electricity System Operator (ESO), Shapps has now raised the overall de-rated capacity target by 1GW to 44.9GW.
In a report to the secretary of state earlier this month, the ESO said it had reduced its estimate of the amount of operational de-rated capacity outside of the Capacity Market by around 350MW based on the latest market intelligence. This decrease was offset slightly by the 50MW of de-rated capacity that the ESO expects to be operational in 2026/27 despite having opted out of the auction on the basis it will be non-operational.
The ESO also recommended a 700MW increase in the procurement target to account for a long-running discrepancy between units’ stated connection capacity and their Transmission Entry Capacity.
The delivery body said similar adjustments have been made for all previous T-1 auctions, including the upcoming T-1 auction for delivery in 2023/24. It said applying the adjustment to the T-4 auction would avoid the need to make a correction for the T-1 auction for 2026/27.
In a consultation also published earlier this month, the Department for Business, Energy and Industrial Strategy (BEIS) proposed to amend the Capacity Market rules to prevent this issue from arising in future.
Under the proposed changes, capacity providers would be required to base the connection capacity of their units on their Transmission Entry Capacity, Maximum Export Capacity or average output in previous settlement periods. For units that are part of multi-unit sites, the sum of their connection capacity would be capped at the Transmission Entry Capacity or Maximum Export Capacity of the site.
The amendments would prevent transmission-connected units from basing their connection capacity on their Connection Entry Capacity and would also remove a range of options for distribution-connected units.
Connection Entry Capacity represents the physical generation capacity of a unit, whilst Transmission Entry Capacity refers to the amount of power it is permitted to export to the transmission network.
BEIS decided against introducing a connection capacity test as proposed by the department in a call for evidence in 2021 after stakeholders raised concerns it would increase the administrative burden on capacity providers. In the call for evidence, BEIS had suggested that some capacity providers had been “artificially inflating” their connection capacity in an effort to offset the de-rating of their units.
As well as accepting the ESO’s recommended adjustments to the overall target for 2026/27, Shapps has also reduced the amount of capacity set aside for the T-1 auction for that delivery year. As a result, the procurement target for the T-4 auction due to begin on 21 February has been raised by a total of 1.5GW to 43.9GW.
The procurement target for the T-1 auction for delivery in 2023/24 is unchanged from the preliminary target of 5.8GW.
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