Energy: Capacity auction signals greater storage but a tougher market for gas


Government has published the results of its latest energy Capacity Market auction, which has secured supplies of power to the National Grid for 2020/21. The auction process finished with the subsidy level set at £22.50 per killowatt – lower than forecast – but the results are expected to be a disappointment for government hopes of getting more from new gas turbine projects, many of which were priced out of the T4 auction.

Only one new combined cycle gas turbine scheme was left in as the auction closed, with one more CCGT extension project included in the final reckoning. A total of 52GW of power was purchased, predominantly from existing supply. More than 9GW of proposed new CCGT power dropped out of the auction before it reached its final round, but battery storage did well out of the bidding, picking up around 500MW of 15 year contracts for new capacity supply.

This is being heralded as good news for renewables, which are not included in the Capacity Market due to their 'variability of supply'. Greater take-up and lowering cost of energy storage capability could become the means for making variable wind and solar power more sustainable if combined with effective and efficient batteries.

"Energy storage did well, but we haven't seen the uplift in CCGT capacity on the large scale that government has talked about as the means for closing the gap between energy supply and demand," said director Jonny Gowdy of sustainable energy advisor Regen. "The Capacity Market is not providing the level of support that CCGT needs because so many other competing technologies are pricing it out now. The market is becoming dominated by smaller types of electricity generation requiring less subsidy."

Government sets out the level of energy capacity it needs to meet through the Capacity Market auctions as calculated from National Grid estimates of the winter peak demand for supply. The annual auction process is then carried out in rounds with the subsidy level rising or dropping until the required supply is met. "The T4 auction was heavily oversubscribed, which goes to show required demand can be quite easily met at a price that is manageable for moving to a new energy system," Gowdy said.

The National Infrastructure Commission's Smart Power report found that investment in smaller, more flexible means of power supply could potentially save up to £8bn per year. "There is now a great premium on flexible energy investment for future supply, but in the meantime we still have a whole lot of energy to source from old infrastructure and power stations that will be shutting down in years to come," said Gowdy. "Many diesel power reciprocating engines won contracts through the T4 auction. New, better alternatives of supply and storage have to be found to secure a 'smart' sustainable array of power supply."