For the third year running the UK Government’s Capacity Market mechanism is unlikely to have encouraged any new large scale gas build. The third Capacity Market auction – held to secure generation capacity for the year 2020/21 – cleared at between £20 to 25/kW/Yr. The final sum is expected to be confirmed in the morning (9/12/16). This price was over £2 higher than the previous year (£18.00/kW/Yr). Still, it is below the perceived levels required to encourage new large scale gas build.
In a review following the previous auction, the Government was clear that a higher clearing price was needed to provide sufficient incentives to the market to generate new gas-fired capacity. The importance of new build gas-fired generation has increased in recent years. This follows the recent decline in baseload capacity of coal-fired power plant and the well-documented Governmental plans to close the industry entirely by 2025.
The level of capacity being sought for delivery in 2020/21 totalled 51.1GW. This was an increase of nearly 2GW from the first Capacity Market auction for 2018/19 delivery and 5GW more than secured last year for delivery in 2019/20.
A slow start for the Capacity Market auction
Bidding in the auction was slow to pick up. After eight rounds over two days there was still 14GW of capacity in the auction at a price of just £35/kW/Yr. In the previous auction for 2019/20 delivery that level of excess was only seen at £75/kW/Yr.
The nature of the capacity that obtained a Capacity Market contract will be confirmed soon by the EMR (Electricity Market Reform) delivery body.
The nominal annual average price impact for consumers of this auction, when the capacity is to be delivered, is expected to be between £3.80 and £4.75/MWh.