National Grid as the EMR Delivery Body has concluded its 2015 T-4 Capacity Market Auction with a total of 46.35GW capacity procured through this second of the Capacity Market auctions.
At £18kW/year (2014/15 prices), the 2015 clearing price is lower than the 2014 clearing price of £19.40/kW/year (2012 prices) and the amount of capacity is also slightly lower (46.35GW in 2015 Auction compared to 49.26GW in the previous year). While the overall capacity to be secured depends on the pre-determined amounts based on a demand curve pre-established by the Secretary of State in consultation to the Electricity Capacity Report published before the start of any auction, the final price may be seen as an indicator of the appetite in industry to secure the capacity contracts.
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The Capacity Market is the mechanism introduced by the Energy Market Reform in 2013 that seeks to contract with capacity providers (CMUs) an obligation to provide capacity at times of ‘system stress’ on the national grid. Through the capacity agreements, a pre-qualified CMU (which can be either an electricity generation unit or an electricity demand reduction provider) agrees to make a specified amount of capacity available in exchange for payment based on the clearing price reached at an auction process.
The majority of the capacity provisionally secured in the 2015 auction is to derive from CCGT CMUs (47.05%) followed by nuclear plan (16.34%) however, it is notable that none of the CCGT plant that secured capacity agreements are for new build plant. Instead, nearly all (97.88%) of the Capacity Agreements provisionally allocated are to existing plant with only 2.09% of capacity secured from new build or refurbishing generating units who would secure 15 year Capacity Agreements. This is notable in the context of the Government’s ambition of encouraging development of new gas plant as announced by the Secretary of State for Energy and Climate Change, Amber Rudd, in “energy reset” on 18 November 2015.
As anticipated, the participation of coal and biomass plant was higher (9.48% compared to 6.43% in 2014). In addition interconnectors were able to participate in the Capacity Auction for the first time and 0.54% of capacity will be provided by existing interconnectors.
The Government has recently consulted on further changes to the Capacity Market (the consultation closed on 10 December) and intends to review the framework to check whether it “still commands the confidence of industry and investors to deliver world class energy security and investment in new capacity”. With this and the aims of the Paris Agreement on which CMS has been reporting in mind, the next auction may produce results quite different from the first two.