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Capacity market winners and losers

UPDATE 2: Auction branded 'failure' as existing plants scoop bulk of subsidies

Capacity market winners and losers image

The UK government is to subsidise 49.26GW of mostly existing electricity generators that have emerged victorious from the country’s first capacity market auction.

The provisional result of the tender set a clearing price of £19.40 per kW per year, which will be paid as a fixed sum to flexible power stations to guarantee their availability on top of any power they produce.

Existing coal and gas plants made up the vast majority of winners in the provisional results. Combined cycle gas accounted for 22.3GW or 45% of capacity, while coal came in at 9.2GW or 19%. Nuclear power came in third place with 7.8GW across 16 generators.

Some 29 hydro and pumped storage stations totalling 682MW were successful in the auction. These include ScottishPower’s 20W Glenlee, 20MW Kendoon and 27.5MW Tongland hydro stations in Galloway, and Statkraft’s two Rheidol hydro generators in Wales that each weigh in at 18MW.

The Nuclear Decommissioning Authority’s 23.6MW Maentwrog hydroelectric station in Wales was also successful.

SSE received in total 4409MW of provisional contracts, including 849MW of hydro and pumped storage capacity.

The tender also contracted 13 energy storage facilities totalling 2699MW, and 15 demand-side response installations totalling 174MW.

Existing infrastructure landed the 68% bulk of all capacity auction subsidies, with a further 26% going to refurbished units. Only 5% went to new-build stations, prompting harsh criticism from some observers.

Quarry Battery Company, the Welsh outfit developing a new 600MWh pumped storage scheme in north Wales, said it withdrew as the tariff dipped.

QBC managing director Dave Holmes said the tender has failed to incentivise new build capacity. “The price went so low that the only winners are those companies operating existing storage sites unburdened by construction debt,” he said.

“The private capital required to build new grid-scale storage will only flow when the market fairly rewards storage for the value it creates. Yesterday’s auction failed to provide even a glimmer of hope that government has understood the scale of the problem it faces.”

Lobby group Greenpeace criticised the award of £292m subsidies to "six of the top 30 most polluting power stations in Europe".

Greenpeace UK energy campaigner Lawrence Carter said: “If this government means a word it says about tackling climate change and is serious about boosting our energy security, then ministers should make sure coal plants don't get a penny in public subsidy."

DECC claimed the capacity market will ensure the lights stay on across the UK at the lowest possible cost to consumers. The total cost will be £0.99bn in 2014 prices, which works out at around £11.40 for the average household. Consumers will start to pay in 2018/19.

DECC believes the capacity mechanism will lower wholesale prices and that when this is taken into consideration the net cost to consumers will be as low as £2 per household to 2030.

Energy Secretary Ed Davey (pictured) said: “We are guaranteeing security at the lowest cost for consumers. We’ve done this by ensuring that we get the best out of our existing power stations and unlocking new investment in flexible plant.”

Auction results are provisional until confirmed by an independent auction monitor. National Grid will publish final auction results on 2 January if no irregularities are found.

Image: RWE

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