March 12 2018
On 9 February 2018, National Grid published the Provisional Auction Results for the 2017 T-4 Capacity Market Auction (the "2017 Auction"), which commenced on 7 February 2018. The successful bidders have been provisionally awarded Capacity Agreements for delivery in 2021/22 at a price of £8.40 per kW per year (2016/2017 prices) (the "Clearing Price"). The Clearing Price is significantly lower than that awarded in the 2016 Capacity Market Auction (the "2016 Auction"), where successful bidders were awarded Capacity Agreements at £22.50 per kW per year.
50.4 GW of capacity was awarded Capacity Agreements in the 2017 Auction - slightly more than the original 50.1 GW targeted by the Business Secretary in his letter of 5 July 2017 (discussed in our previous law-now), which was later revised down in the Auction Guidelines, published on 2 January 2018, to 49.5 GW. The levels of capacity exiting the 2017 Auction resulted in only 67.9% of the total capacity of the projects which entered the auction securing agreements, compared to over 75% in the 2016 Auction.
The technologies provisionally awarded Capacity Agreements broadly match trends seen in previous years. The technology with by far the greatest share was existing Combined Cycle Gas Turbines with around 45% of the total capacity.
The percentage of total capacity awarded to interconnectors has more than doubled to over 9%, as a result of the New Build IFA2, ElecLink and NEMO Link interconnectors provisionally securing Capacity Agreements.
On the other hand, the percentage of total capacity awarded to coal and biomass has halved compared to the 2016 Auction, while battery storage projects have secured just 153 MW of capacity, significantly less than the 501 MW procured in the 2016 Auction. This is partly a result of the Low Clearing Price coupled with Government's decision to cut payments to limited duration storage, as a result of which, batteries with a shorter duration have a lower de-rating factor.
1.2 GW of Unproven DSR was also provisionally awarded Capacity Agreements, down slightly on the figures from the 2016 Auction.
Over 90% of the Capacity Agreements were secured by existing plant, with just 0.76 GW being secured by new build generating capacity. The small proportion of new build generation securing Capacity Agreements coupled with the low Clearing Price raises questions about whether the Capacity Market is meeting its original policy intentions, including encouraging investment in new build generation, such as large-scale gas power stations. Whether the 2017 Auction result prompts a review of the overall mechanism remains to be seen.
Unless instructed otherwise, the Delivery Body will publish the final results of the 2017 Auction to bidders by 20 February 2018.
For further information on this topic please contact Robert Lane, Munir Hassan, Sarah King or Louise Dalton at CMS Cameron McKenna Nabarro Olswang LLP by telephone (+44 20 7367 3000) or email (email@example.com, firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The CMS Cameron McKenna Nabarro Olswang LLP website can be accessed at cms.law.
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