The UK’s latest auction for back-up electricity cleared well below
expectations, casting doubt on how much new capacity will be built to avoid
winter supply shortages in the future.

The National Grid’s website showed Thursday’s auction for 2021-22 supply
cleared at £8.40 per kilowatt (kW)/year, below the £15 to £25 kW/yr range
which analysts had forecast.

The auction results shows the majority of capacity agreements – more than
45% – were awarded to combined cycle gas turbine units. However, CCGTs,
mostly new builds, were also the largest group of generation capacity units
which exited the auction above the clearing price.

Agreements went 86% (43.3 GW) to existing generation, 762 MW to new build
generation and 2.155 GW to new build interconnection.

Natural gas dominated by fuel type, cornering 29.6 MW of agreements,
followed by nuclear with 7.9 GW.

Just 2.565 GW of coal won through across two sites, with agreements for
three of four 500 MW units at Uniper’s Ratcliffe-on-Soar plant and for two
units at Drax (560 MW and 650 MW).

Lawrence Slade, chief executive of Energy UK said: “This Capacity Market
auction clearing low once again proves that competition is successful at
providing security of supply at the lowest cost to consumers.

“This auction along with those preceding it have supported innovative,
emerging technologies whilst ensuring we get the best value from existing
assets.

“We will continue to work with government as the Capacity Market evolves,
including the possible inclusion of renewables in future auctions, and in
the forthcoming review of Electricity Market Reform.”

But David Bowman, managing director of the N-ERGY consultancy, said these
results are confusing for those interested in the capacity market due to
the lack of consistency between the government’s clean growth and coal-free
strategies and the actual support and incentives provided for renewable
energy or battery storage.

He said: “As advocates of renewable energy and battery storage, it feels
like these future-proof solutions for energy storage are being disregarded
with gas being the safer choice for the government. It clearly wants to
achieve a low-carbon energy mix but wants the private sector to pay the price.

“The provisional results of the recent capacity market auctions are
worrying for many reasons.

“The clearing price has hit rock-bottom reaching £6.00 per kW per year for
T-1 and £8.4 for T-4 (down from £18-£22.5). Gas came out on top in both
auctions of the overall fuel type with 75.55% in T-1 and 58.74% in T-4.
Coal came second in T-1 with 7.57% and fourth (after Nuclear and
Interconnector) in T-4 with 5.09%.

“Battery storage was only awarded 1.69% in T-1 and 0.3% in T-4 and
similarly, 0.08% went for solar in T-1 and less than 0.01% in T-4 with only
one awarded Capacity Market Unit (CMU) in each auction.

“Gas is considered a low-carbon fuel, but it is still un-renewable and not
as green as renewable energy. Solar and battery storage percentages are
very low and will make it harder to achieve a low-emission energy mix.”


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