Bloomberg claims the policy will do little to encourage investment in new gas-fired plants, or demand-side response in the short or medium term.
Seb Henbest, head of Europe, Middle East and Africa at Bloomberg New Energy Finance, said: “This message from our analysis will disappoint those who have been hoping that the capacity market would immediately pave the way for new gas-fired capacity in the UK, and also those who have been calling for the rapid retirement of coal-fired power plants.”
Bloomberg’s analysis predicts that 56.2GW of eligible legacy capacity will enter the first capacity auction in December – more than enough to meet the government’s target of 53.3GW, meaning there would be no need for new gas-fired capacity to be built.
Monne Depraetere, power analyst at Bloomberg New Energy Finance, said: “Coal-fired generation still accounts for 40% of the UK’s electricity. Those plants already exist, their construction costs are sunk, and so they will be able to under-bid developers of gas-fired power stations that have yet to be built. Whereas the carbon price floor will drastically reduce coal plant run hours, the capacity market now anchors their role as back-up generation.”
Bloomberg New Energy Finance calculations suggest that an existing coal plant would need a capacity payment of at most £45 per kW per year – and in some cases significantly less – to break even. A new gas-fired project would need a subsidy of at least £49 per kW per year.
However, in the longer term, Bloomberg predicted 80% of current coal capacity was likely to be forced offline completely by 2024 as a result of tightening EU emissions regulations.