The UK's latest T-4 capacity market auction failed to contract any large-scale new build combined-cycle gas turbine (CCGT) plants, while coal plants that missed out on capacity agreements may now face closure by 2021.
Transmission system operator National Grid contracted around 52.4GW of generation capacity on behalf of the government in the auction, which began on 6 December before clearing yesterday afternoon at a price of £22.50/kW. Of this total, around 85pc is sourced from existing plants, compared with just 6.5pc from new build projects. And this new build figure includes Irish utility ESB's 880MW Carrington gas plant, which has already started commercial operation.
The auction had been expected to clear higher than the two previous T-4 sales held to date, but the price is only marginally above the £18/kW clearing price from last year and £19.40/kW price in 2014.
The government had implemented a series of reforms aimed at producing a higher clearing price in this year's auction, in order to ensure that the scheme contracts the much-needed large scale CCGT projects required to replace the country's ageing coal-fired fleet.
But with existing coal and nuclear plants — which require a far lower clearing price to incentivise operation than new build units — again competing in the auction, the auction price has been pulled down to a level at which building a large gas plant is unfeasible.
Only two new build projects of larger than 100MW in capacity were contracted, UK utility Centrica's Kings Lynn B and US-based firm Intergen's planned extension to its existing Spalding facility, but both of these are smaller than 500MW in size.
Around 17.5GW of capacity or potential capacity exited the auction without a capacity agreement, of which 10.3GW was from developers of planned new-build schemes.
But the auction did successfully contract around 3.2GW of power storage projects, adding to the 2.6GW that had been awarded capacity agreements in last year's T-4 auction.
All eight of the UK's nuclear plants have been contracted once again, while the West Burton A, Aberthaw and Ratcliffe coal plants, as well as two of the three remaining coal-fired units at UK utility Drax's Selby-based coal plants were all granted capacity agreements, meaning at least 6GW of coal-fired capacity will remain operational until 2021. Drax did not enter its third coal unit into the auction as it still hopes to keep it eligible for a contract for difference subsidy for a conversion to biomass-fired.
But French state-controlled utility EdF's 2GW Cottam and UK utility SSE's Fiddlers Ferry coal plants exited the auction without a contract and may now face closure at the end of winter 2018/19, for which they had already been awarded agreements in the 2014 T-4 auction. SSE also failed to win an agreement for its 1,180MW Peterhead gas plant.
EdF and SSE confirmed this morning that they are likely to enter this capacity into next month's extra capacity market auction, which will contract capacity for delivery in winter 2017/18, after the government brought forward the start of the scheme by one year. The utilities also have the option of entering the T-1 auction for winter 2020/21, which procures additional capacity for each delivery year to align with the latest supply margin forecasts for that winter.
All four of the UK's existing interconnectors to France, the Netherlands, Northern Ireland and the Republic of Ireland were successfully contracted in the auction. But the planned 1GW Nemo cable with Belgium failed to win a contract for a second successive year.
UK firm Calon Energy was awarded a three-year capacity contract for its 525MW Baglan Bay CCGT on the basis that the company refurbishes the facility before the contract's delivery year.
The capacity market aims to ensure security of power supply by offering an additional financial incentive to generators to make their contracted generation units available to the grid when it is most needed during the winter. Successful generators awarded capacity agreements will receive the auction's clearing price in annual payment from delivery start date in winter 2020/21 until the end of their contract in return for making their capacity available to the grid during any periods of system stress.
