Bringing unsubsidised wind and solar power into a reformed capacity market would save bill payers hundreds of millions of pounds, according to a new paper from Aurora Energy Research.
Aurora counts Dieter Helm as a director and the report outlines his plans for an ‘equivalent firm capacity auction’ as mooted in the recent Cost of Energy review commissioned by government.
It suggests bringing zero marginal cost renewables into the auction would in the longer term rein in both the clearing price and wholesale prices.
However, by penalising non-delivery, that approach would also encourage renewables generators to invest in back-up power, says Aurora, recognising and addressing the cost of intermittency.
The report also outlines why the most recent capacity market auctions cleared at such a low rate, suggesting low bidding from demand-side response (DSR) and interconnectors as a result of specific economic advantages were the key factors.
The consultancy forecasts capacity market clearing prices will rise above £20/kW in the 2020s, but believes new build agreements will go to flexible technologies such as DSR, battery storage and smaller gas peakers out to 2025.
Once coal, and potentially existing nuclear, comes off the system, the firm foresees some new larger gas power stations (CCGTs) securing capacity market agreements in the latter half of the decade.
See the report here.