Monday June 24, 2019

Capacity Market T-1 auction clears at all-time low

The rescheduled 2018 T-1 Capacity Market (CM) auction cleared at an all-time low price of £0.77/kW, falling from the previous low seen at the last CM auction of £6.00/kW. A total of 129 CMUs (Capacity Market Units) were awarded agreements, procuring a total 3.6GW capacity.

Overall, gas-powered and combined heat and power (CHP) units received the majority of agreements, obtaining 45 and 30 respectively.

The low clearing price proved discouraging for demand-side response (DSR) units with a total of 29 DSR agreements awarded to providers, down from 74 DSR agreements in the 2017 T-1 auction. Storage projects were also deterred, with 6 total projects awarded agreements.

A full breakdown of the results and applicants is provided by National Grid ESO here.

Current State of the Capacity Market

The CM scheme is currently under suspension, following a ruling on 15 November 2018 by the European Court of Justice that its design was biased against small-scale, clean energy units and therefore shouldn’t be eligible for State Aid approval. Under EU State Aid rules, it is required that member states need to consider alternative options to meeting power demand, before subsidising fossil fuel generation.

The Court’s decision means that payments made under the CM scheme will be frozen until the UK Government can obtain permission from the European Commission to continue in an official capacity.

The European Commission has to undertake a formal investigation of the CM to clear it. If successful, the Department of Business, Energy and Industrial Strategy (BEIS) has said that auction results to date will still stand and that payments are legal.

In the meantime, BEIS has asked the National Grid Electricity System Operator (ESO) to keep the Capacity Market scheme running, short of making payments. BEIS has said that if those with contracts deliver their obligations, they may then be eligible for deferred payments if the market is reinstated.

BEIS expects a decision by the Commission to be made by early next year.

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