Posted on: 13/06/2019
After the T-1 Capacity Market (CM) auction cleared at a price of £0.77/kW this week, Head of Markets for Asset Optimisation, Boz Bozhkov outlines the winners and losers from this year’s auction, as well as the reasons why.
Another year and another record low clearing price for the T-1 CM auction. This has been no ordinary auction however, conducted against the backdrop of the Capacity Market suspension following legal action taken by Tempus Energy.
It seems so long ago that the European Court of Justice made the decision to bring the CM to a standstill, but its worth remembering that it now means any contracts handed out this week are provisional upon reinstatement of the scheme.
9420.357MW of De-Rated Capacity entered this year’s T-1, over 1GW less than last year – potentially due to the uncertainty created by the factors outlined above. However, what was for certain was the accuracy of pre-auction clearing price predictions.
Existing assets won the lion’s share of contracts again this year (and accounted for around 2/3rds of auction participants), not least because with the clearing price so low, successful bidders will be those assets which would have generated regardless.
That said, the future of the CM is not as bleak as the outcome may suggest. With more coal exiting, interconnectors’ role being questioned (despite the NEMO link interconnector winning 680MW of new-build capacity this time round) and higher gas and carbon prices in future set to push coal and CCGTs out of contention, new-build capacity could yet find more favourable prices in the second half of the 2020’s.
With the investment case for new build not nearly as strong as originally predicted when the CM was introduced, its clear that this mechanism is just one of a number of revenues that project developers need to be taking advantage of in order to optimise returns from their project.
I’ll be hosting a webinar next week which will address the CM, the potential of balancing markets and which other revenues generation assets should be looking to stack in order to maximise returns.
About the author
Bozhidar is responsible for analysing market opportunities to help asset owners maximise revenues. His role includes the continued development of processes and systems to enable customers to always optimise their positions and he also liaises with National Grid and DNOs to ensure access to all relevant opportunities. Bozhidar joined SmartestEnergy from KiWi Power where he was Head of UK Operations. He holds a Bachelor of Business Administration from Northeastern University, USA and a Master of Science in Economics and Policy of Energy and the Environment from University College London.