Electricity capacity market auction secures gas and coal-fired plant

Auction ensures sufficient generating capacity will be available to meet peak demand from 2018/19

The first ever Capacity Market Auction, designed to ensure that sufficient electricity generation capacity is connected to the grid and ready to meet peak demand for winters from 2018/19, resulted in nearly 50 GW of capacity being secured at a clearing price of £19.40/kW/year. This represents great news for consumers, said Ed Davey, Secretary of State for Energy and Climate Change, suggesting that fierce competition had driven costs down below expected levels. 

The new Capacity Market is just one part of a wide programme of electricity market reform designed to bring more competition into the market and to stimulate private sector investment in new low carbon generation capacity, and to secure energy supplies in the short, medium and long term.

The result from the auction, which closed late on 18 December last year, ensures that enough of Britain’s existing generating capacity will remain open at the end of the decade, as well as new investment coming forward, including a large new gas-fired plant, added Davey.

The first stage of the process was to estimate how much capacity will be needed in 2018/19, the first year the Capacity Market will be running, says the Department of Energy and Climate Change (DECC). Electricity providers then bid into this capacity auction, promising if they win a contract that they will be available to provide electricity when needed. In return, they will receive a steady payment on top of the electricity that they sell. Through the auction, the government has procured 49.26 GW of capacity at a clearing price of £19.40/kW. This will cost a total of very nearly £1bn (in 2012 prices), which works out at around £11 for the average household, adds DECC.

The main beneficiaries of the auction were existing gas, coal-fired and nuclear power stations; with just one large new power station bidding successfully – the proposed 1650 MW combined cycle gas turbine planned for a site at Old Trafford, Manchester. Gas-fired plants won 45% of the total capacity, with coal/biomass winning nearly 19% and nuclear 16%.

The outcome attracted some criticism that the process is helping to prolong the life of existing coal-fired power stations, rather than attracting new, cleaner plant to fill any capacity gap from 2018/19.