What lessons can be learnt from the UK’s latest Capacity Auction?

What lessons can be learnt from the UK’s latest Capacity Auction?

This month’s UK capacity market auction left a bitter taste in the mouths of optimistic developers, with final prices low enough to discourage new developments in clean energy and energy storage.

This year’s T-4 auction clearing price of GBP £8.40 per kW a year – just over 60% lower than that of last year’s auction. It spells both good news for British energy consumers and concern for those who think the rock-bottom prices will stall clean energy innovation.

“This capacity market auction clearing low once again proves that competition is successful at providing security of supply at the lowest cost to consumers,” said Lawrence Slade, chief executive of industry body Energy UK, in a press note.

“[These auctions] have supported innovative, emerging technologies whilst ensuring we get the best value from existing assets,” he said.

Total capacity awarded to newcomers was low, with 50.4 GW going to existing generation assets. Energy storage technologies were awarded just 5.3% (2.7 GW) of the total available capacity.

The surge in recent years of small-scale generation projects and battery storage installations have led to a worrying oversupply in energy storage capacity in the UK market. Combined with the low number of 15 year contracts as opposed to short term one-year contracts, and the sharp drop in clearing price, signal that the UK T-4 market is heavily slanted towards the buyers.

The French market faces similar oversupply difficulties, with power market prices similar to the T-4 clearing price.

Aris Karcanias, senior managing director and co-lead of FTI Consulting’s Global Clean Energy Practice in London, England, said the U.K. market has seen a surge of investment in small-scale generation, battery projects and new interconnectors, leading to an oversupply of capacity. French power market reference pricing is around €10 ($12) per kilowatt, roughly equivalent to the T-4 clearing price.

“This is an important trend that will likely last until the coal plants start to retire around 2021,” says Aris Karcanias, senior managing director and co-lead of FTI Consulting’s Global Clean Energy Practice. “The French power market is similarly oversupplied and will likely tighten [only] when coal plants and nuclear plants retire from 2022 and beyond,”

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