National Grid has published the register for the auction for delivery in 2020/21, which is due to take place later this year. It shows a total of 74.7GW of de-rated capacity has prequalified – 21.4GW of new build and 53.2GW of existing capacity. The procurement target for the auction is 52GW.
The company with the largest prequalified battery portfolio, totalling more than 900MW of de-rated capacity, is Battery Energy Storage Services – a subsidiary of the renewable energy company RES. UK Energy Reserve – a subsidiary of UK Power Reserve – has more than 200MW prequalified and NASU Energy Storage slightly less than that.
A new 50MW pumped hydro storage plant being developed by Snowdonia Pumped Hydro (48MW de-rated) also prequalified, along with more than 2GW of new de-rated demand-side response capacity and the new 1GW Nemo Link interconnector to Belgium (770MW de-rated).
The government’s main aim for the capacity mechanism is to encourage the development of new combined cycle gas turbine (CCGT) plants. CCGT plants with a combined de-rated capacity of roughly 9.4GW prequalified for the auction.
They include two 1.6GW plants being developed by Thorpe March Power near Doncaster in South Yorkshire and MPF Generation at Willington in Derbyshire (1.44GW de-rated); a 1.64GW plant being developed by Scottish Power at Damhead Creek in Kent (1.47GW de-rated); and a 1.21 GW plant being developed by Gateway Energy Centre at Stanford-Le-Hope in Essex (1.1GW de-rated).
Around 5.6GW (de-rated) of new build reciprocating engines prequalified, including a number of small-scale diesel generators. As they have a carbon intensity similar to that of coal generation, there was widespread criticism when small-scale diesel generators won the bulk of contracts for new capacity in the first two auctions.
Prequalified capacity for the T-4 capacity market auction
Source: Aurora Energy Research, National Grid figures
In March, the government announced proposals to overhaul the capacity market to make it more difficult for small-scale diesel generators to win contracts. It said the Department for Environment, Food and Rural Affairs (Defra) would consult on new emissions limits for plants of less than 50MW and that it expected legislation to come into force no later than January 2019.
At the beginning of August, Defra warned bidders into the upcoming auction that they were likely to be “directly impacted when the legislation comes into force”. Emissions from larger plants are already regulated by the EU’s Industrial Emissions Directive (IED), which came into force at the beginning of the year.
Small-scale diesel generators were able to outbid new combined cycle gas turbines in the first two auctions in large part because of the financial advantages – or ‘embedded benefits’ – they enjoy by virtue of being connected to distribution networks. Ofgem has been reviewing these benefits since the beginning of the year, including the exemption from Transmission Network Use of Service (TNUoS) charges. In July, it published an open letter calling for stakeholders to give their views on potential changes by 23 September.
Developers have also been able to take advantage of schemes such as Enterprise Investment Scheme and Seed Enterprise Investment Scheme which help investors to raise finances for riskier ventures. Last month the Department for Business, Energy and Industrial Strategy announced tweaks to the capacity market rules to enable financial support received under the schemes to be offset against capacity market payments. BEIS said it was necessary to prevent the possibility of the capacity mechanism breaching EU state aid rules.
Existing coal plants
Existing plant which pre-qualified for the upcoming T-4 auction included two of Drax’s remaining coal-fired units and all of the coal-fired units at SSE’s Fiddler’s Ferry, EDF’s Cottam and West Burton A, RWE’s Aberthaw B and Eon’s Ratcliffe-on-Soar.
In March SSE backtracked on plans to three of the four units at Fiddler’s Ferry after it was awarded black start contracts by National Grid. It said it expected the plant to stay open until at least March 2017.
In a letter to National Grid towards the beginning of July, the energy secretary at the time, Amber Rudd, revealed that Cottam and West Burton A had missed capacity market milestones for delivery in 2020/21, having previously secured multiyear agreements. The Telegraph reported that EDF had scrapped plans to upgrade the plants to enable them to operate for longer than would otherwise be possible under the terms of the IED.
RWE said in April it would reduce operations at Aberthaw B beginning in April 2017 due to “challenging market conditions”.
Early T-1 and Transitional Arrangements auctions
National Grid has also published the register for the year-ahead (T-1) auction for delivery in 2016/17, which the government announced in May to replace the Contingency Balancing Reserve a year early, and the Transitional Arrangements (TA) auction for delivery in 2016/17, which is dedicated to demand-side response.
Around 61.9GW of de-rated capacity prequalified for the early T-1 auction and around 670MW for the TA auction. They are scheduled to take place in January and March respectively.