T-4 Capacity Market Auction: existing generation drives clearing price to a record low

National Grid announced that the T-4 Capacity Market Auction for delivery year 2021-22 closed with a provisional clearing price of £8.40 per kW per year – a record low.

13 February 2018

The T-4 Capacity Market Auction for delivery year 2021-22 closed on 8 February 2018 with a provisional clearing price of £8.40 per kW per year (2016/7 prices). The results will be finalised within eight working days. Read the National Grid summary report (PDF).

74.4GW of (de-rated) capacity entered the auction, with 50.4GW of capacity securing agreements at this record low clearing price. The price represents a significant reduction on previous T-4 clearing prices, which have historically ranged from £18 per kW per year to £22.50 per kW per year.

How will capacity for 2021-22 be delivered?

0.76GW
New build generating stations, represented by 67 different Capacity Market Units (CMUs).
2.16GW
Three new build interconnectors (Nemo Link, ElecLink and IFA2).
1.2GW
101 unproven and nine proven Demand Side Response (DSR) CMUs.
>90%
Great Britain's existing fleet of gas, coal, biomass, diesel, hydro and nuclear power stations and interconnectors.

 

14.1GW of proposed new build generating capacity, 0.95GW of storage and over 1GW of unproven and proven DSR (represented by a combined total of 327 CMUs) exited the auction before it cleared. Set against the backdrop of Great Britain’s ageing fleet of conventional and nuclear power stations, this represents a dilemma for the government.

Where does this leave the Capacity Market?

The Capacity Market was designed to facilitate investment in capital-intensive new power stations through secure long-term 15 year contracts in order to help ensure Great Britain’s security of supply in the decades to come.

It will be interesting to observe whether the government continues to regard the Capacity Market as being fit for purpose and delivering value for money to consumers; it may consider that the current mechanism is helping to bring forward only the most cost-effective projects and successfully extending the longevity of our existing fleet of generating stations.

However, an alternative view is that a more substantial overhaul of the scheme is now required in order to help bring forward the new generating stations, storage capacity and innovative DSR projects that are anticipated to be required to meet Great Britain’s long-term electricity requirements.

How can Burges Salmon help?

Burges Salmon is advising a wide range of clients across the full range of technologies on issues arising out of the Capacity Market. We are very active in assisting clients with the acquisition, development and financing of commercial scale battery storage and flexible gas power stations and are helping numerous aggregators to put in place DSR arrangements which can benefit from Capacity Market revenues.

If you require any assistance, please contact James Phillips, Nathan Curtis or your usual Burges Salmon contact.

Key contact

James Phillips

James Phillips Partner

  • Head of Oil and Gas
  • Energy, Power and Utilities
  • Environment

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