In a new briefing published today, Frontier and Lane Clark & Peacock (LCP) assess the results of the fourth Capacity Market auction, that concluded on 8 February 2018.
The Capacity Market is a government policy designed to ensure that there is sufficient generation capacity to meet long-term electricity demand. All capacity providers (including new and existing power stations, storage, interconnectors and demand-side response) secure the right to receive capacity revenues by participating in a competitive auction which sets the level of capacity payments. Capacity auctions are held four years ahead of delivery (T-4), with a subsequent auction held one year ahead (T-1).
The T-4 capacity auction for 2021/22 cleared at a price of £8.40 per kW, which will be paid to all successful participants for providing available capacity in winter 2021/22. The clearing price observed in this auction was less than half the observed clearing price in any of the previous three T-4 auctions held to date. While the low clearing price is a good news for customers, it is likely to have implications for the supply mix for the GB system in the future.
In the bulletin, we examine:
- Winners and losers in the auction
- Reasons underpinning the unprecedently low auction clearing price
- Implications for and uncertainty surrounding the future supply mix for the GB system
Frontier regularly advises public and private sector organisations on commercial due diligence of energy infrastructure assets, and on issues relating to security of supply and electricity market design across Europe.
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