18th March 2020
The higher-than-expected clearing price is over double that of the previous T-3 auction at £6.44/kW/y, and includes an impressive 117.0237MW of battery storage being awarded contracts.
Concerns had been raised over a recent string of low clearing prices, with the T-1 top-up auction in June 2019 clearing at just £0.77/kW/y and the more recent T-1 auction remaining low at £1/kW/y.
The last T-4 auction to go ahead prior to the suspension and later reinstatement of the scheme cleared at £8.40/kW/y, which was a significant reduction of he the previous T-4 auctions..
The jump in price has been welcomed by Madeleine Greenhalgh, policy lead for Regen, which administers the Electricity Storage Network, but continued support for Combined Cycle Gas Turbines (CCGTs) and coal, despite the new stringent emissions limit introduced last year, was criticised.
She pointed to the need for the Capacity Market to evolve alongside the net zero transition. Madeleine Greenhalgh also warned about the need for greater clarity on how the Capacity Market fits with other tools National Grid ESO uses.
“We know system stress events are changing and becoming more complex as the energy system evolves and there is a risk the Capacity Market becomes something of a Maginot Line, no longer defending against the speed and type of threats we face,” she said.
While this latest T-4 auction – for delivery 2023/24 – has cleared at a significantly higher price, the 205.6MW of unsuccessful battery storage in this round shows that clearing prices are still “too low to encourage significant new-build development”, according to Tom Edwards, senior modeller at Cornwall Insight.
Despite this, new builds did make up the majority of the 117.0237MW awarded to storage, accounting for 13 of the 16 successful assets.
This was in contrast to the last T-3 auction, where only 3.578MW of battery storage won contracts, none of which was new-build capacity, and the T-1 top-up auction in June 2019, where only one new build was awarded capacity.
Battery storage saw a success rate of 36% in the auction, reflecting the higher clearing price. However, it only made up 0.27% of the 43748.988 MW awarded across all asset classes in the 2023/24 T-4 auction.
CGGT picked up the largest quantity of contracts at 41.92% (18,341.537MW), followed by combined heat and power (CHP) with 10.25% (4,483.088MW).
Coal also picked up 1,320.975MW, despite the UK’s dwindling fleet and net zero target, accounting for 3.02% of contracts won. Demand side response (DSR) picked up 2.68% of the capacity (1,167.694MW).
Anesco and Eelpower continue to appear in the DSR asset class, having seemingly sidestepped the derating factors attached to battery storage assets in 2018 in the latest T-1 and T-3 auctions by listing as DSRs. In the 2023/24 T-4 auction, Anesco was awarded 65.554MW and Eelpower 31.934MW.
Ofgem said that more thought was needed for how storage could participate in the DSR asset class.
Forecasting capacity market prices has proved difficult since the scheme started:
Delivery Year | T-4 Clearing Price | T-1 Clearing Price | Total Cost to Consumers |
2019/20 | £18/kW | £0.77/kW | £837m |
2020/21 | £22.50/kW | £1/kW | £1,181m |
2021/22 | £8.40/kW | (auction is next year) | >£423m* |
2022/23 | £6.44/kW (T-3) | (auction in 2022) | >290m* |
2023/24 | £15.97/kW | (auction in 2023) | >699m* |
*excludes T-1 cost, which is typically a small percentage of the overall cost
Further, the other winter peak charge is TNUoS, which is mainly collected through the ‘Triad’ methodology for half-hourly metered customers.
This cost is based on average site consumption during three half-hour periods between November and February when the National Grid is under the greatest strain. This brings in an overall revenue of around £2.8 billion, so is a significantly larger Levy.
For anyone contemplating new demand management measures at their sites to reduce such charges, there are some important factors that consumers need to be aware of:
To find out more, contact Inenco’s team of experts on 08451 46 36 26.