Up to half of small generators with capacity market contracts for delivery in winter 2018/19 and 2019/20 could give them up due to steep revenue cuts proposed by the energy regulator.
Embedded benefit rates, specifically the so-called Triad payment, are set to be slashed from £45/kW to less than £2/kW under Ofgem’s plans.
Consultancy Aurora Research believes this may hit small generators’ projected capacity market revenues by up to 40% and could lead them to give up contracts issued in 2014 and 2015 (T-4) auctions. It thinks they may potentially then bid their assets back in to early (T-1) auctions in the hope of a better deal. The consultancy estimates Ofgem’s changes, if they lead to a shortfall in capacity delivery, may drive up capacity market prices in those auctions.
The firm also believes that the impact of the changes on the Triad mechanism will drive up wholesale and balancing mechanism prices, and may also lead National Grid to spend more on Short Term Operating Reserve (STOR) procurement.
Meanwhile, the consultancy estimates that although proposed Triad changes will drive up capacity market outturns, little in the way of large new gas plant, or combined cycle gas turbines (CCGTs), will be developed over the 2020s, perhaps 1GW to 3GW. Much large thermal plant will also run at load factors of under 15% throughout the decade, it suggested, with the economics of those conditions ruling out CCGTs.
See the research note here.
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Ofgem outlines deep cuts to generators Triad payments
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UK manufacturers say Esos not working, DSR too complicated and Triad needs reform
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