Just 1.65GW of new build generation has been procured in the latest four-year-ahead (T-4) Capacity Market auction despite it clearing at a record high of £65/kW/yr.
The previous record was set during last year’s T-4 auction, which cleared at £63/kW/yr and procured 3.45GW of new build generation.
This year’s auction for delivery starting in 2027/28 was undersubscribed when compared to the headline procurement target of 44GW.
Slightly less than 43.4GW of capacity entered the auction and contracts were awarded to around 42.8GW, comprising:
- 33.3 GW of existing generation
- 1.65GW of new build generation
- 245MW of refurbished generation
- 5.5GW of existing interconnectors
- 1GW of new interconnectors
- 231MW of proven demand-side response (DSR)
- 899MW of unproven DSR
Gas generation accounted for 28.7GW – or two thirds – of the auction total. The figures above are all de-rated capacity, except those for DSR which are bidding capacity.
Successful capacity by technology type
The 1.65GW of new build generation included around 1GW of batteries. Due to the low de-rating factors for batteries, particularly those with shorter discharge durations, Aurora Energy Research said this 1GW represents 5.7GW nameplate capacity, including 872MW with a discharge duration of more than 2.5 hours.
William Stephenson, GB flexible energy team lead at Aurora, said “market headwinds” such as the “severe” de-rating factors “appear not to have blunted the appetite for these projects”.
The 299MW Eggborough project, the only new build open-cycle gas turbine (OCGT) project entering the auction, did not secure a contract and accounted for more than half of the de-rated capacity that failed to do so.
Stephenson said large-scale turbines have struggled to compete against smaller gas engines due to policy risks, regulatory barriers and a lack of embedded benefits.
Fintan Devenney, senior energy analyst at EnAppSys, said: “Going into the auction, the margin of capacity above the demand curve was the lowest ever seen in a T-4″, noting that, despite pre-qualifying, the new 470MW Killingholme combined-cycle gas turbine (CCGT) did not enter.
He said: “A further roughly 250MW of capacity from smaller assets also exited in the first two rounds and, combined with the exit of Eggborough OCGT, this was enough to cause the auction to clear at an all-time high price as total capacity supply dropped beneath the demand curve.”
Stephenson said the previously mothballed Sutton Bridge and Severn Power CCGTs “which had originally appeared to be seeking 15-year agreements and considering refurbishments of around £250 million per plant” instead decided not to refurbish and took one-year contracts. Both failed to secure contracts in last week’s T-1 auction.
“This result does, however, confirm that the two plants will return to the GB power system at the latest by 1 October 2027, while it’s still possible that they could return sooner,” he added.
Stephenson said new build generators are currently facing policy uncertainty with the government’s ongoing Review of Electricity Market Arrangements and difficulties in getting timely grid connections and planning permissions.
“Until these barriers are removed, we can expect the new-build pipeline to remain limited,” he warned. “Combining this with the large gap in capacity that we expect in the next two or three auctions, caused by major delays to the Hinkley Point C nuclear plant, creates an environment in which Capacity Market prices could remain high for several years.”
Stephenson said the contracts awarded in this year’s auction will be worth a total of £4.4 billion if they are all fulfilled, “equivalent to approximately £65 per person in the UK”.
Cumulative capacity procured across auctions to date
Sam Hollister, head of energy economics and finance at LCP Delta, said: “The undersubscription in the auction was always expected to lead to very high prices, and as predicted, we are now looking at a cost of £2.7 billion for 2027/28, followed by an additional £1.7 billion spread annually over 14 years, a cost consumers will certainly bear the brunt of in due course.”
He said: “For the first time in the history of the T-4 auctions, less capacity entered the auction than the overall target. This is due to the dramatic drop in the volume of new-build capacity entering the auction as unabated gas stations face uncertainty and low carbon flexible capacity is yet to come forward in significant volumes.
“In this volatile market, if these concerns are not addressed, this may be the sign of things to come with high clearing prices and little new generation coming forward.”