Capacity Market Auction: ‘Bizarre’ Government policies blocking renewables funding

The results of the T-1 Capacity Market Auction set a clearing price of £6 per kW, which is believed to be the lowest of any auction to date. Experts claim that the low prices are being driven by an increase of demand response initiatives and more cheap gas plants.

But with gas and demand response accounting for the majority of the agreements – three-quarters of power secured in the auction was from gas projects – one of the last remaining coal-fired plants in the UK announced its closure.

Eggborough is one of the eight remaining coal-fired power plants in the UK but announced its closure early today, after failing to secure an agreement in the latest auction, which effectively secures back-up power for later this year.

Commenting on the closure, the Energy and Climate Intelligence Unit’s (ECIU) energy analyst Dr Jonathan Marshall said: “It is yet another sign that old and polluting technology is losing out to demand side response and distributed capacity, at the same time as the capacity market clears at a record low price to ensure security of supply at low cost for homes and businesses.

“The terminal decline of coal power is coming at the right time, whenever cheaper renewables are able to fill in the gap, and concerns about air pollution spread around the country. Looking ahead, the UK can continue to lead the world away from the most polluting fossil fuel, one of the most important factors in meeting global climate targets.”

With the UK Government committing to closing all remaining coal-fired plants by 2025, Eggborough’s closure is expected to be followed by others. However, the UK Government has been informed that a carbon price of £40 per tonne may be required to shut down all remaining coal plants by 2025.

‘Bizarre situation’

Even though the Capacity Market Auction has blocked support for coal, the Renewable Energy Association (REA) has accused the Government of propping up the fossil fuel industry.

Less than 6% of this auction’s power reserve comes from renewables, while less than 2% is covered through energy storage. In contrast, coal secured an 8% share.

The Government is yet to announce any funding for renewable projects under the Levy Control Framework beyond 2021, while requests from the REA on funding renewable heat projects in the Framework’s wake have been ignored.

The REA’s head of policy and external affairs James Court said: “This is another example of Government subsiding fossil fuels whilst blocking the cheapest renewables to market. No long-term carbon price has been assigned, yet the Government is happy to directly financially support gas and diesel projects. That funding can be better used to drive innovation in the wide range of storage technologies instead.

“The clean growth plan talked a good game but failed to walk the walk. We are in the bizarre situation where we are propping up fossil generation, but scaling back support for technologies that are cheaper, cleaner and will provide future proofed jobs. The government’s energy policy needs a complete rethink, or we will be left behind with a dirty, antiquated and expensive energy system.”

Currently, onshore wind, large-scale solar and biomass installations can’t be funded through Contracts for Difference auctions, while cuts to subsidies in the renewable energy sector have created a 56% decline in investment between 2017 and 2016.

Last year, it was revealed that the UK was providing annual £356m subsidiaries to the coal industry, as documented by the OECD and International Monetary Fund (IMF). However, the UK Government “explicitly denies” that these payments exist.

Matt Mace