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GB Capacity Market: No Place at the Table for New Generation

On the eve of the four-years-ahead electricity Capacity Market auction in Britain, power plant developers are hoping that there will be a place for them at the table. The data suggest that they could be disappointed again this year.

The Capacity Market is intended to ensure there is enough generation capacity to meet the demand for electricity at times when output from renewables is low. These days, a Capacity Agreement is vital for new power plants to have a viable business case.

In a recent article, I suggested that the main themes of this year’s auction would be storage, demand side response (DSR) and reciprocating engines. I stuck my neck out and predicted that new combined cycle gas turbine (CCGT) plants would miss out yet again this year. Preliminary analysis of the list of prequalified bidders suggests that CCGT is not the only technology that is likely to miss out.

Existing plants will be first in the door

About 50.1 GW of capacity is up for grabs in the auction. Existing generation plants with total capacity of 47.6 GW will be competing for a share together with 2.5 GW of existing storage (pumped hydro) and 2.3 GW of existing interconnectors. Precedence suggests that not all of these are likely to be successful in the auction, but based on historical success rates for these categories, I calculate that about 46 GW of existing assets could be awarded Capacity Agreements. The anticipated make-up is shown below.

That leaves about 4 GW for the remaining bidders to fight over. In the fray will be new-build generators, existing plants that have refurbishment plans, new storage (mostly batteries), new interconnectors and demand-side response. The chart below shows how the candidates stack up against the prize.

Who is likely to be included?

The chart above indicates that the competition amongst new entrants will be fierce. So, what technologies are most likely to be successful? Nearly 3 GW of demand side response has prequalified for this auction, which is a significant increase on 0.7 and 1.8 GW in 2015 and 2016 respectively. Based on historical success rates, there is a decent chance of about 2.2 GW getting through.

That leaves about 1.8 GW for the others. The capital costs of refurbishing a plant are generally lower than those for a new plant, so my analysis (based on results from previous auctions) suggests that about 0.7 GW could go to refurbished assets.

The net result is that new-build generators, new interconnectors and storage are likely to be fighting for about 1 GW of the pie. Mere crumbs. Battery projects have been dealt a huge blow recently with the announcement of de-rating factors based on discharge time and distributed generators have had their “embedded benefits” trimmed since the last auction. These developments have introduced a measure of uncertainty.

Unlike previous years, interconnectors are likely to have significant influence. This year sees the ElecLink (690MW de-rated) and IFA2 (715MW de-rated) projects competing for the first time. According to the National Grid Interconnector Register (30 Nov 2017), ElecLink is already under construction, so it would benefit at any strike price and can be expected to under-cut new generation plants. The IFA2 project is in the “scoping phase” and the Nemo interconnector with Belgium (de-rated capacity of 750MW) is entering the T-4 auction for the third time, having been unsuccessful in previous editions. There is therefore a decent chance that at least one of the new interconnectors will take a large seat at the table.

New generation left out

This all makes for a bleak outlook for new-build CCGT. If any new-build generation is going to be successful, it is likely to be distributed reciprocating engines. Again, the same old story, but at much lower volumes than in the past. CCGT might have a look in next year…but probably not.

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