Capacity market clears at £6.44, lowest yet

The latest capacity market (CM) auction for delivery over winter 2022/23 has cleared at £6.44 per kilowatt per year, the lowest outturn since the auctions for long-term services began in 2014.

Owners of 59GW of derated capacity across most forms of generation, storage, demand-side response and interconnectors, were bidding on a requirement of 44.2GW. In the end, the ESO took just over 45GW.

The auction is the first since the market’s reinstatement. It was suspended in November 2018 for almost a year after the European Court of Justice upheld a challenge from Tempus Energy.

As a result, two more auctions are set to run this year: the T-1 auction, for capacity for the coming winter, starting 6 February and; the T-4 auction for delivery over winter 2023/24, starting 5 March.

Short-term capacity market auctions have delivered lower prices than this year’s T-3, but these are  top up auctions for low volumes – effectively money for nothing for many generators.

According to consultancy EnnAppSys, the result poses a conundrum to UK policymakers.

Interconnector operators won 2.8GW of new contracts, while older thermal plant dropped out. Interconnectors benefit from a ‘cap and floor’ revenue mechanism, which guarantee a level of return, the firm points out.

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