Posted on: 18/06/2019
The delayed T-1 capacity auction for delivery next winter has cleared at 77p/kW, a record low since the mechanism was introduced.
In total, 129 units were awarded an agreement, totalling 3.6GW of capacity. Reciprocating engines were the biggest winners with 45 agreements followed by CHP with 29.
Demand-side response providers also won agreements covering some 200MW of capacity. Only 6 battery storage projects were successful.
Around 9.4GW of de-rated Capacity entered this year’s T-1, more than 1GW less than last year.
Existing assets win lion’s share
SmartestEnergy’s Head of Markets for Asset Optimisation, Boz Bozhkov said existing assets won the lion’s share of contracts again this year, “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 Capacity Market is not as bleak as the outcome may suggest. With more coal exiting, interconnectors’ role being questioned 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 2020s."
“With the investment case for new build not nearly as strong as originally predicted when the CM was introduced, it’s 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.”
The Capacity Market is currently suspended following a legal challenge by Tempus Energy that was upheld by the European Court of Justice.
The government hopes to reinstate the market this year or next.