UK T-1 Capacity Market auction clears at £35.79/kW

Of the ~9.5GW of derated capacity that entered this year's auction, ~7.6GW secured contracts against a target of ~7.7GW. In the first seven rounds, less than 300MW of capacity exited. In the eighth round, however, the Sutton Bridge and Severn power stations, the two largest units in the auction, both exited, resulting in their collective ~1.5GW of capacity leaving the auction and causing it to clear.

The auction cleared at a price of £35.79/kW/year, improving the financial prospects of many new-build assets as well as continuing the lifespan of some units that were at risk of retirement.

The Capacity Market is a mechanism introduced by the UK Government to ensure that electricity supply continues to meet demand as more volatile and unpredictable renewable generation plants come on stream. In the T-1 auction, potential Capacity Market participants can bid for contracts in auctions held one year ahead of the delivery date.

During the delivery year, capacity providers will receive monthly payments for their agreed obligation at the auction clearing price. Providers are expected to be available to respond with their agreed generation volumes or load reductions when called on by National Grid Electricity System Operator at times of system stress.

The auctions follow a descending clock format, starting with offers of £75/kW/year and gradually reducing by £5/kW/year decrements in each round. Participants specifying the price at which they would exit the auction, until the minimum price is reached, at which the supply of capacity offered by bidders is equal to the volume required. As the price descends, the target capacity increases.

T-1 Capacity Market Auction Results:
The T-1 Capacity Market Auction for delivery year 2024/25 took place on 20th February 2024 and concluded at 15:15 after 8 rounds of bidding at a clearing price of £35.79/kW/year. A total of 9.8GW derated capacity had prequalified for the auction against a target capacity of 7.7GW, surpassing the record for the highest target capacity in any T-1 auction for the second consecutive year.

Contracted capacity is more highly valued in comparison to the value achieved by units in the T-4 auction for the 2024-25 delivery year held in March 2021.

That auction cleared at £18.00/kW/year, meaning that units that won a contract in this auction will receive approximately double the payment for their capacity compared to units that won contracts in the T-4 for the same delivery year.

All nuclear units that entered won contracts in the auction, including the Torness, Hartlepool 1 and Hartlepool 2 units. In total they account for 45% of awarded capacity for existing Generating Capacity Market Units (CMU).

These units had previously opted-out of this year’s T-4 auction for this delivery year as it they were expected to be retired. However, a decision has been made to extend the lifetimes of Hartlepool and Heysham to 2026, while Heysham 2 and Torness power stations are now due to stay operational until 2028.

New build vs existing capacity:
The predominance of nuclear units reduced the remaining capacity required from new build assets, as only 686 MW were awarded contracts, an 8% decrease from last year’s 744 MW. The total awarded to battery storage has increased by 5.5% from last year’s auction, with around 75% derived from new builds.

The total capacity not procured increased by ~1.5 GW in comparison with last year’s T-1 auction, with 91% of this capacity comprised of CCGT units.

In the initial seven rounds, the auction saw a departure of less than 300MW in capacity. However, during the eighth round, both the Sutton Bridge and Severn power stations, the two largest units in the auction, withdrew, leading to a combined loss of approximately 1.5GW of capacity and triggering the auction to conclude.

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