T-3 Capacity Market auction clears at new lows

The T-3 Capacity Market (CM) auction has cleared at £6.44 per kilowatt per year, marking the lowest outturn for a T-3 auction to date. The result will guarantee capacity for delivery over winter 2022/23.

A required capacity of 44.2GW was made available to bidders representing a total 59GW of derated capacity. The final result saw National Grid ESO procure 45.1GW of capacity.

The T-3 auction is the first since the reinstatement of the CM in October 2019. Two further auctions are scheduled for this year; a T-1 auction commencing 6 February and a T-4 auction to start 5 March.

The Market was originally suspended in November 2018, following a ruling from the European Court of Justice that the design of the scheme was biased against small-scale, clean energy units and therefore should not be eligible for State Aid approval. However, the ensuing investigation carried out by the European Commission reconfirmed its eligibility, enabling the Market to be restored.

Capacity Market consultation launched

Following the recent reinstatement of the Capacity Market the Department for Business, Energy and Industrial Strategy (BEIS) has launched a consultation on proposed changes to the scheme. The government hope to implement improvements to the CM’s design to reflect recent market and regulatory developments.

In summary, the government proposes to:

• Allow all types of capacities to apply to prequalify to bid for all the agreement lengths available in the Market, provided they can demonstrate they meet relevant capital expenditure thresholds.
• Reduce the minimum capacity to participate from 2MW to 1MW.
• Legislate the government’s commitment to procuring at least 50% of the capacity set-aside for the T-1 auction.
• Incorporate any new capacity type into the CM that can demonstrably contribute to the generation adequacy problem.
• Establish a reporting and verification mechanism for the carbon emission limits to be applied to the Market.
• Remove the exclusion of plants with Long-term STOR (Short-term operating reserve) contracts from the CM.

The consultation will conclude on 2 March 2020.

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