UK's one-year-ahead capacity market auction clears at record GBP45-50/kW/year

London — The UK's latest one-year-ahead capacity auction (T-1) for 2021/2022 cleared in the round six at between GBP45-50/kW/year ($62.52-$69.47/kW/year), data from auction organizer National Grid showed March 2.

This represents a massive increase on previous one-year-ahead and four-year-ahead (T-4) capacity market auctions, reflecting current tightness in UK generation margins.

The auction was seeking to contract 2.4 GW, itself a big increase on the government's 400 MW assessment of needs last year.

Some 4.24 GW of de-rated capacity entered the two-day auction, which opened at a ceiling price of GBP75/kW/year.

For once, however, the auction cleared within the first day of bidding at a record price for any UK capacity auction.

"The high price reflects the late decision to contract an additional 2 GW of T-1 capacity in light of the non-delivery risk for a number of CM capacity holders (notably Calon's gas fleet, EDF's nuclear fleet and the new ElecLink interconnector)," said S&P Global Platts Analytics' Manager, European Power, Glenn Rickson.

One notable large scale plant without a T-4 capacity market contract is EDF's 2 GW West Burton A plant, Rickson said.

"The plant would likely have required a high T-1 price to offset the fact that we forecast Winter-21 Clean Dark Spreads at a record low minus GBP13/MWh," he said.

Having a capacity market contract, however, does not necessarily mean that plant will run in normal market conditions, he said.

"Drax's coal units have CM contracts until September, 2022 but the company has made clear it intends to cease commercial coal generation from the end of this month," Rickson noted.

The last T-1 auction for 2020/2021 had cleared at GBP1.00/kW/year, while the last T-4 auction for 2023/2024 had cleared at GBP15.97/kW/year.

The highest price achieved in any of the auctions was GBP22.50/kW/year, in the T-4 auction for 2020/2021 held back in December 2016.

Reduced nuclear and gas plant availability this winter has seen electricity system operator National Grid issue several capacity warnings, prompting short periods of record power prices during the evening peak.

The much larger four-year-ahead auction (T-4) is to be held next week, starting March 9. The government is seeking agreements for 40.1 GW of capacity.