The auction process, which was previously scheduled to begin in 2018/19, has now been moved up due to fear of power shortages occurring as early as this winter as coal-fired power plants are phased out according to plan. Five plants have been shut down so far this year, and all of the nation’s coal power capacity is expected to be shut down by 2025.
According to DECC, a previously scheduled auction for capacity to be delivered in 2020/2021 will be held in December. An early auction for 2017/2018 will now take place in January 2017, with a special auction for turn-down demand side response capacity to be held in March.
DECC aims to secure 53.8 GW for delivery in 2017/18, as well as 300 MW of turn-down demand side response, while for 2020/2021 the government is aiming to secure 52 GW, some 6 GW higher than last year’s auction. DECC said this in line with its strategy to “buy more capacity and buy it earlier”.
Energy secretary Amber Rudd said: “We are taking the action needed to tackle the legacy of under-investment in our energy infrastructure, build a system fit for the 21st century and ensure our country’s long-term energy security.”
According to estimates from consultancy EnAppSys’s latest quarterly electricity market report, Britain’s supply margin stayed above 2 GW throughout winter 2015/16 except for a single two-hour period. For winter 2016/17 the supply margin is predicted to dip below 2 GW for 85 hours, with a negative margin expected for 12 hours.
In anticipation, National Grid has awarded 3.5 GW in Supplemental Balancing Reserve (SBR) contracts to unprofitable plants that would otherwise have had to shut down, covering the period between November and February when EnAppSys says the system could come under “significant stress”.
Paul Verrill, Director at EnAppSys, told Power Engineering International that the SBR contracts “and the potential that this will provide all of Great Britain’s spare reserve this coming winter as stated by National Grid … demonstrated that the capacity market auction to date has not achieved the security of supply expected”. However, he noted that the current auction plan seems to be “a reboot” in “an attempt to learn from the lessons from previous auctions”.
“While previous auctions certainly delivered value for money,” he said, “the structure of the auction meant that participants could treat the contracts won more as an option than an obligation, and in particular weak penalties for failed delivery meant that there have been shortfalls in terms of delivery across the auctions carried out.
“The coming auction now has a step change in capacity sold from previous auctions and this will mean that for the first time, levels of capacity being procured exceed the levels of capacity expected to be operational in the market irrespective of any auction process at the time of delivery. This should result in higher prices in the coming auction and any reluctance to invest following Brexit will increase prices further. Offsetting these higher prices will be a more secure electricity system.”
In its comment, the Renewable Energy Association (REA) echoed Verrill’s concern with previous auctions, noting that data from DECC show that “5 GW of conventional, fossil fuel-powered generation that were awarded earlier contracts under the scheme have missed their targets for delivering the projects and therefore more capacity must be procured in the next auction rounds to cover the possible shortfall”.
Frank Gordon, REA senior policy analyst, said: “Renewables are the only form of power generation that have been delivering new capacity at any scale in recent years so the government’s best chance of ensuring supplies and meeting legally binding renewable and emissions targets is to better support this sector.”
According to EnAppSys, in May the UK’s solar power installations produced over 50 per cent more power than coal-fired plants. Between April and June, coal power generation fell by 76 per cent year-on-year, while solar power generation grew by 174 per cent against the previous year. Gas-fired power generation grew by 56 per cent, while wind and nuclear power showed marginal reductions.
Said Verrill: “The next important milestone is to see which assets pre-qualify in the new auction and which of the existing generation assets opt out. Only when we have this information will we be able to get a better feel for what the GB market will look like in the future.
“Hopefully with this next auction, the issues of security of supply within the GB electricity market can be resolved,” he added, “and hopefully an additional level of security has now been built in to ensure that the supply secured, does indeed turn out to be secure.”