Information from auction organiser EMR Delivery Body has unveiled that the most recent four-year (T-4) Capacity Market auction secure 42.4GW of capacity that will be installed up to the year 2025/26.
The auctions were agreed at a price of £30.59 per Kwh, which is the highest clear price for a T-4 auction since 2016, when almost 52GW were awarded agreements at a price of £22 per Kwh, according to S&P Global.
Experts believe that, despite the high price, the auctions will help cut the cost of the UK’s energy system in the long run, provided the nation can combat the ongoing gas crisis.
Commenting on the results, Dr Simon Cran-McGreehin, Head of Analysis at the Energy and Climate Intelligence Unit (ECIU) said: “By securing this back-up generation, this latest capacity auction is helping to cut the costs of the electricity system by enabling the UK to make the most of cheap renewables.
“Even with the higher clearing price in today’s auction, the costs of providing this security are dwarfed by the costs of the gas crisis that’s directly adding at least £500 to household bills from April and driving almost all of the 54% hike in home energy costs.
“When these capacity contracts kick in, the UK will have an extra 6GW of offshore wind installed, giving homegrown, net zero power that’s free from international interference and that pays back in a gas crisis – in addition to today’s wind farms that are set to pay back at least £660million during the current gas crisis.”
It comes just days after the Capacity Market auction for 2022/2023 closed, with bids hitting their highest levels since the scheme was launched under David Cameron’s government in 2014. The scheme awards contracts to generators who promise to increase generation to meet demand if it spikes; it was designed to help maintain energy security as the UK’s demands increase and as more intermittent renewable generation comes online.
All capacity in the auction this week will be contracted at £75 per kW. This is a record high, with the record prior to this round having stood at £45 per kW. In total, some 5gW of capacity has been included in this round.
High bids have been influenced by numerous factors, it is being reported. There is the current energy price crisis, with wholesale gas prices now quadruple what they were in winter 2020-2021, as well as closures of nuclear and coal power stations. These trends mean that more capacity was sought than in previous years.
The majority (almost 3.4GW) of the capacity supported by this auction will come from gas. Less will come from battery energy storage (385MW) and pumped energy storage (85GW) than from coal (411MW). All coal capacity will come from the Ratcliffe-on-Soar plant in Nottingham.
Matt Mace