Gas plants and interconnectors won big in UK’s T-4 auction

European renewable PPA prices show ‘remarkable stability’

The UK’s T-4 Capacity Auction for delivery in 2024/25 concluded last week, with interconnectors and open cycle gas turbine plants (OCGTs) securing big wins, while coal and nuclear capacity diminished significantly.

The Capacity Market is a mechanism introduced by the UK government to ensure that electricity supply continues to meet demand as more volatile renewable generation plants come online. Potential Capacity Market participants can bid for contracts in auctions held four years ahead of the delivery date.

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During the delivery year, capacity providers will receive monthly payments for their agreed obligation at the auction clearing price. Providers are expected to be available to respond with their agreed generation volumes or load reductions when called on by National Grid at times of system stress.

An analysis of this year’s T-4 results by EnAppSys showed that interconnectors were awarded 6.9GW of contracts compared to 5.3GW last year.

Gas retained the largest share of awarded capacity (64.7% compared to 62.5% last year), followed by interconnectors, while wind, solar and battery storage all saw increases from the previous year.

The analysis also highlights that no coal units won a contract in the latest auction, compared with the 1.3GW secured last year, while nuclear units were awarded only 2.0GW, down from 4.0GW in the 2023-24 T-4 auction.

Paul Verrill, director of EnAppSys, said: “OCGTs and interconnectors were the big winners in the latest T-4 auction. OCGTs are larger capacity units than the reciprocating engine-based units that have filled the peaking segment of the market in previous auctions and may represent a change in direction for the market as embedded benefits for smaller units diminish.

“Meanwhile, interconnectors are becoming increasingly important to Britain’s power system. Increased interconnection with neighbouring markets will enable excess power, such as that generated from wind and solar farms, to be traded and shared between countries. This will, however, require efficient markets and cross-border trading arrangements which currently are still being developed in a post-Brexit world.”

Image credit: EnAppSys

Key price results

  • The T-4 auction saw clearing in Round 12 with a clearing price of à‚£18/kW/year and a total procured de-rated capacity volume of 40.8GW. A total of 52.0GW of de-rated capacity entered the auction, 79% of which was accepted.
  • The clearing price is higher than the à‚£15.97/kW/year seen in last year’s T-4 auction, though down from the recent T-1 auction, which cleared at a record high à‚£45.00/kW/year.
  • The price in the T-1 auction closed in the early rounds when a single large coal unit, West Burton A, exited the auction.

Verrill added: “The higher price in the latest T-4 auction is in part due to existing large and old power stations starting to drop out of the auctions earlier, causing the price to be set by newer power stations. This trend is likely to continue as renewables contribute a greater share of Britain’s power mix and the ‘lost money’ that the capacity mechanism seeks to replace becomes more of an issue for the larger inflexible power stations.”

Wind farms accounted for 27MW of contracts, all focussed on onshore wind, up from 11MW in the previous T-4. Solar units were awarded 13MW of contracts, matching the amount secured in the recent T-1 having not received any in the previous T-4.

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