The clearing price for next four-year-ahead (T-4) capacity market auction is unlikely to be high enough to secure investment in new combined cycle gas turbines (CCGT), Cornwall Energy has predicted.
The government’s efforts to stop small-scale diesel generators from winning contracts will only have the desired effect in certain circumstances, it said in analysis.
The market intelligence firm said there is a “significant level of uncertainty” over the T-4 auction for delivery in 2020/21. It estimated that the auction could clear at anywhere between £20/kW and £50/kW due to wide-ranging assumptions over the “the level of embedded participation, interconnectors, coal closures and the effects of changes in demand”.
Small-scale diesel generators were awarded the majority of contracts for new capacity in the first two auctions. To stop this happening again the government has made efforts to remove the ‘embedded benefits’ experienced by the generators, and has increased the target volume for the auction to 52GW.
Cornwall Energy estimated that a clearing price of £42/kW would be needed in the next auction to secure investment in new CCGTs. It therefore said the government’s attempts to stop the return of small-scale diesel would only pay off “in the scenarios where we assume low interconnection, low embedded participation and coal closures”.
If the auction clears at the middle of the range (£30/kW), it would cost around £1.5 billion in the first delivery year (£17.80 per household). This would be “enough to replace all of the current CCGT fleet with 33GW of CCGT”. If the auction did clear at £42/kW, the annual cost would rise to £2.1 billion.
Cornwall Energy also estimated that the extra auction for 2017/18 – brought in to replace the Supplemental Balancing Reserve a year early – will clear at between £19.8/kW and £27.5/kW. With 53.8GW of capacity being secured, this would result in an annual cost of just over £1 billion.
The T-4 auction for delivery in 2020/21 is due to take place in December this year. The early auction for delivery in 2017/18 is scheduled for January.