Gas and Coal Big Winners in U.K. Power Auction

Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--U.K. power auctions worth £378 million ($472 million) have concluded with gas and coal/biomass-fired plants emerging with the lion's share.

In the Capacity Market Auction held by the country's electricity system operator National Grid (NYSE:NGG) (London, England), combined-cycle gas turbine plants secured 40% of the contracts to supply power for the coming winter period in 2017-18. This was followed by coal and biomass powered plants with 20%, and nuclear power at almost 14.5%. The auctions are designed to secure future power supplies for the country at the best price, with plant operators having to guarantee supply when needed. The winners are guaranteed a special price for the power they supply, while consumers benefit from the bidding war that ensues to win the contracts. The auctions covered more than 54 gigawatts (GW) of power.

The Capacity Market Auction ensures that extra electricity capacity is available in case of unexpected power station outages or peaks in demand. This latest auction closed with a price of £6.95 ($8.70) per kilowatt, which was less than half the level that some analysts had expected.

The government said that its proposals to phase out unabated coal power generation by 2025 was reflected in the results, where they noted a significant reduction in the role that it will play in the Capacity Market year on year. So far, there has been a 30% drop in coal capacity winning agreements for 2021 compared to 2018.

U.K. Energy Minister Jesse Norman commented: "Reliable power supplies are essential for businesses to thrive and succeed. Thanks to this auction, homes and businesses can have confidence in the availability of that electricity at the lowest possible cost. More widely, the composition of the U.K.'s electricity supply is now clear beyond the end of this Parliament."

Industrial Info has reported on the U.K. government's plans to shut all coal-fired power plants within a decade. For additional information, see November 23, 2015, article - U.K. Calls Time on Coal-Fired Power.

SSE plc (LSE:SSE) (Perth, Scotland) secured agreements to provide a total of 4,451 MW of capacity in the auction, 3,611 MW of coal, gas-fired and embedded power generating plant alongside 840 MW of hydroelectric and pumped storage plants. However, its Peterhead gas-fired power station did not secure an auction agreement for the third time, which the company said will lead to a review of its future operations.

Contracts were also awarded for 209 MW of combined capacity to demand-side response (DSR) technologies, including battery storage, in the latest auction.

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