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British power capacity auction falls short of forecasts

Published Feb 09, 2018 08:54 Updated Feb 09, 2018 09:00
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© Reuters. British power capacity auction falls short of forecasts
 
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By Nina Chestney

LONDON (Reuters) - Britain's latest auction for back-up electricity cleared well below expectations, casting doubt on how much new capacity will be built to avoid winter supply shortages in the future.

The National Grid 's website showed Thursday's auction for 2021/22 supply cleared at 8.40 pounds per kilowatt (kW)/year, below the 15 to 25 pounds/kW/yr range which analysts had forecast.

In December 2016, when a similar auction for supply four years in advance (2020/21) cleared at 22.50 pounds/kW/year, analysts said a price of 35-45 pounds was needed to spur new gas plant investment.

The auction results, published in detail on Friday, shows the majority of capacity agreements - more than 45 percent - were awarded to combined cycle gas turbine units.

However, CCGTs, mostly new builds, were also the largest group of generation capacity units which exited the auction above the clearing price.

Britain began capacity auctions in 2014, looking to head off future power shortages as coal plants close and as low electricity prices dissuade investors from building new capacity. The government has said it wants to have up to 26 GW of new gas generation built by 2030.

Plant owners are paid to make available back-up power at short notice. National Grid (LON:NG) said 50.4 GW of capacity agreements were awarded in this auction.

SSE (LON:SSE) secured agreements for almost 3.4 GW of gas-fired and embedded power generation plants and a 806 megawatt hydro electric and pumped storage plant.

However, it said it was disappointed it did not secure agreements for a proposed new-build combined cycle gas turbine plant, Keadby 2.

It also did not get one for its coal-fired power station Fiddler's Ferry but says there is no immediate impact as three of the four units there have agreements for supply until 2019.

"SSE will consult with major stakeholders and make a final decision about the future of Fiddler’s Ferry beyond the station’s capacity contract commitments, which run to September 2019," the company said in a statement.

Drax Group (LON:DRX) said it secured capacity market agreements to provide more than 1.2 GW of capacity from its two existing coal units at its Yorkshire coal and biomass plant, worth 10 million pounds.

Drax said two new open-cycle gas turbine (OCGT) projects participated in the auction but exited above the clearing price.

Drax expects that these projects will now go on to participate in the next auction for supply four years ahead.

EDF (PA:EDF) Energy said it got one-year agreements for 2021-2022 for nuclear power plants Dungeness B, Sizewell B, Hinkley Point B, Heysham 1, Heysham 2, Hartlepool, Torness and Hunterston B and its West Burton B CCGT plant.

For the list of auction winners and losers:

British power capacity auction falls short of forecasts
 

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