The auction aims to secure 45.4GW for delivery in the winter of 2019-20 by running a reverse auction over four days next week.
Baringa Partners’ Phil Grant told Utility Week that the auction will run along similar lines to the first auction held last year, opening at £75kW and decreasing by in £5/kW increments over four rounds per day.
To remain in the auction generators will need to keep dropping their bids until only the most economically competitive plants are left to make up only as much capacity as is needed.
Last year the auction cleared at significantly lower levels than expected by the market, and Grant says similarly low prices could come forward this year too.
“Our latest modelling shows prices clearing at similar levels to last year £20/kW, but the result is pretty sensitive to a number of assumptions,” he said.
“There are some scenarios in which the price could clear higher – particularly if some of the smaller-scale gas and diesel engines fall out of the auction process as the auction descends towards £30/kW,” he added.
Last year the auction cleared after three days of steadily declining bids from participants, falling far below the £25-40/kW predicted by analysts to £19.40 per kilowatt per year to secure 49.3GW of power supply for 2018/19.
Critics warned at the time that the low clearing price of the auction would needlessly reward existing power plant – which would have been available to the market even without a contract – and fail to bring forward investment in much needed new power capacity.
The fears were confirmed after Carlton Power said in October that it had still not been able to secure the investment needed to drive £800 million Trafford gas-fired power plant project forward, despite the auction win, meaning it might not be available to supply power by its contracted 2018 start-date.
This year interconnector capacity will also be included in the auction alongside conventional generating units which will allow foreign energy companies to contribute to the government’s target volume.