The latest Capacity Market auction (T-1) has secured almost 5.8GW of capacity for winter 18/19 at just £6 per kilowatt (kW) per year – far lower than the £15/kW/yr forecast by the Department of Business, Energy & Industrial Strategy (BEIS).
The low price is most likely due to the high volume of capacity bidding into the auction – at almost 10.7GW, it was nearly double the volume required.
The majority of those winning capacity contracts are also from established gas and, to a lesser extent, coal/biomass-fired generation. So bidders were probably prepared to offer low priced bids as are seeing these T-1 contracts as a revenue top up for running existing plant.
DSR still wins contracts
However, while 840MW of DSR lost out, 443MW of DSR bids still secured contracts, which represents 7.67% of the overall capacity awarded. The largest share (358MW) of this was for unproven DSR.
With a new Medium Combustion Plant Directive (MCPD) coming into force from December 2018, any impacted generation unit with capacity between 1-50MW will have to adhere to new emissions standards, which is likely to result in the fitting of expensive new abatement technology.
For many DSR participants, this will require a review of cost versus benefit.
Overall, 1.54% of the capacity contracts were awarded to storage technologies (batteries and a small volume of compressed air).
Free Capacity Market report
If you’d like to know more about the Capacity Market mechanism and how it works, you may find a new report by our award-winning Optimisation Desk useful – you can download it here.
The latest Capacity Market auction has eight working days to be approved by the government. Then once all the figures are confirmed, our pricing teams will calculate what the cost to consumers will be on next winter’s invoices.
We’ll also bring you news of the next Capacity Market auction – T-4 for capacity to be delivered in four years time (2021/22) – which starts in a few days on 6 February.
For more information on cost impacts to your business, please speak to your Client Lead (existing customers) or email us via nBS@npower.com, and we’ll be happy to share forecasts with you. We can also help you review existing DSR plans and opportunities in light of the Medium Combustion Plant Directive.