The latest capacity market (CM) auction for delivery over winter 2022/23 has cleared at £6.44 per kilowatt per year, the lowest outturn since the auctions for long-term services began in 2014.
Owners of 59GW of derated capacity across most forms of generation, storage, demand-side response and interconnectors, were bidding on a requirement of 44.2GW. In the end, the ESO took just over 45GW.
The auction is the first since the market’s reinstatement. It was suspended in November 2018 for almost a year after the European Court of Justice upheld a challenge from Tempus Energy.
As a result, two more auctions are set to run this year: the T-1 auction, for capacity for the coming winter, starting 6 February and; the T-4 auction for delivery over winter 2023/24, starting 5 March.
Short-term capacity market auctions have delivered lower prices than this year’s T-3, but these are top up auctions for low volumes – effectively money for nothing for many generators.
According to consultancy EnnAppSys, the result poses a conundrum to UK policymakers.
Interconnector operators won 2.8GW of new contracts, while older thermal plant dropped out. Interconnectors benefit from a ‘cap and floor’ revenue mechanism, which guarantee a level of return, the firm points out.
Non-interconnector new-build capacity amounted to only 319MW. Of this, energy from waste plants accounted for 122MW, reciprocating engines 150MW, batteries 27MW, onshore wind 15MW and combined heat and power plants (CHP) 6MW.
“We weren’t surprised by the low clearing price as increased competition from interconnectors and the level of capacity procured meant there was little room for new build assets to get the prices they need to mitigate the ‘lost money’ from renewable growth,” said EnAppSys director Paul Verrill.
“The results also show that there isn’t actually enough room under the current arrangements for some older assets and UK’s security of supply will therefore rely on European generation. This seems a bit ironic given that we have just left the European Union!
“The problem arises that, currently under EU rules, interconnectors between member countries have to operate in a commercial open market regime where energy flow follows price and demand.
“After the Brexit transition ends on 31st December, 2020, whatever the negotiated outcome, the GB market will no longer be part of the EU internal energy market and interconnectors will operate under different arrangements where energy flows do not automatically follow price and demand. This will mean that the reliance on interconnectors in providing security of supply will have to be reviewed.”
See T-3 auction results here.
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