And it all starts again: Details of the next Capacity Market auction confirmed by BEIS

United Kingdom

Whilst it feels like the dust has scarcely settled on the 2017 CM auctions held in January & February 2018 (discussed in our previous law now), the Department of Business, Energy and Industrial Strategy (“BEIS”) has confirmed the parameters for both the T-4 Capacity Market (“CM”) auction for delivery in 2022-23 and the T-1 CM auction for delivery in 2019-20.

How much capacity will be auctioned?

In a letter to the director of the UK System Operator at National Grid on 5 July 2018, the Business Secretary, Claire Perry confirmed that her department would be seeking a total target volume of 46.3 GW in the T-4 auction, which will be held on 5 February 2019. This figure matches that which National Grid has recommended through its role as the Delivery Body in its Electricity Capacity Report (“ECR”), after the Panel of Technical Experts (“PTE”) consulted by BEIS for this purpose confirmed the ECR analysis.

The letter also established a 4.6 GW target for procurement in the T-1 auction which will be held on 29 January 2018. This also matches National Grid’s recommendation under the ECR. The full auction parameters are listed in the table below:

Auction

T-1

T-4

Demand curve coordinate – volume at price cap

3.6 GW

44.8 GW

Demand curve coordinate – volume at £0/kW

5.6 GW

47.8 GW

Price cap

£75 /kW/year

£75 /kW/year

Net CONE

£49 /kW/year

£49 /kW/year

Price Taker Threshold

£25 /kW/year

£25 /kW/year

15 Year Minimum £/kW Threshold

N/A

£270/kW (De-rated capacity)

3 Year Minimum £/kW Threshold

N/A

£135/kW (De-rated capacity)

Indexation base period

N/A

2017 / 2018

Table 1 – Auction parameters1

PTE report

In its report on the ECR, the PTE stated that its acceptance of the recommendations by the Delivery Body for the volume of capacity to be secured owed to their agreement with the “sensitivities that went into the estimation” but also the Delivery Body’s application of the ‘Least-Worst Regret’ evaluation. Also in its report, the PTE confirmed its approval of the Delivery Body’s approach to the risks of potential non-delivery (i.e. plant with existing CM contracts closing or otherwise voiding their contracted contribution). Despite the PTE’s general acceptance of the Delivery Body’s stance on non-delivery, the PTE has recommended that, in the upcoming wider five 5-year review, an examination of the adequacy of the penalty regime for non-delivery is undertaken.

When will the auctions take place?

On 19 July 2018 we saw the publication of a new version of the CM auction guidelines by the Delivery Body, updated from the original version published on 9 July 2018, along with the CM Operational Plan also released on 9 July. These documents also set out the schedule for the next auctions, which include the prequalification windows for both auctions which are set to open later this month:

Auction

T-1

T-4

Prequalification window opens

23 July 2018

23 July 2018

Prequalification window closes

14 September 2018

14 September 2018

Prequalification results notified

16 November 2018

16 November 2018

Notification of prequalified CMUs and associated update of affected Auction Parameters

T-3 weeks

8 January 2019

T-3 weeks

15 January 2019

Notification of updated Auction Parameters and confirmation of the conditional prequalified applicants

T-3 weeks

8 January 2019

T-3 weeks

15 January 2019

Confirmation of Entry and decisions under Rules 5.5.11, 5.5.13 and 5.5.14 notified to DB

T-15 to T-10

8 January 2019 to 15 January 2019

T-15 to T-10

15 January 2019 to 22 January 2019

Mock Auction (users login run through a scripted auction in readiness for live auction)

T-7 days

18 January 2019

T-7 days

25 January 2019

Auction start

29 January 2019

5 February 2019

Table 2 – Auction timetable2

The above timetable provides participants with a shorter prequalification window for the T-4 auction than was the case under the last prequalification window. However, the notification date for the prequalification results has been extended this time around. The auctions will continue to be held in the first two months of 2019, despite being the 2018 auctions, which shorten the delivery period available for successful projects. The Delivery Body outline in the CM Operational Plan that the prequalification process has maintained a similar timeline so that it may continue to deliver a plan that allows capacity providers the time to develop their prequalification strategies and engage with the Delivery Body. However, maintaining the previous approach has not addressed various industry requests for prequalification simplification.

De-rating factors

The ECR outlines the proposed de-rating factors for 2019/20 and 2022/23 by the conventional generation technologies and includes a comparison with those used last year for the 2017 CM auctions:

Name for technology class

Plant types included

De-rating factor (ECR 2017) plus storage DRF as used in 2018 auctions

De-rating factor (ECR 2018)

Oil-fired steam generators

Conventional steam generators using fuel oil.

89.13%

89.13%

Open Cycle Gas Turbine (OCGT)

Gas turbines running in open cycle fired mode.

95.14%

95.14%

Reciprocating Engines

 

Gas turbines running in open cycle fired mode. Reciprocating engines not used for autogeneration

95.14%

95.14%

Nuclear

Nuclear plants generating electricity.

84.20%

84.20%

Hydro (excluding tidal / waves / ocean currents/ geothermal / storage)

Generating Units driven by water, other than such units:

(a) driven by tidal flows, waves, ocean currents or geothermal sources; or (b) which form part of a Storage Facility

90.09%

90.09%

Storage by duration in hours for T-1 and T-4 auctions2

Conversion of imported electricity into a form of energy which can be stored, the storing of the energy which has been so converted and the re-conversion of the stored energy into electrical energy Includes hydro Generating Units which form part of a Storage Facility (pumped storage hydro stations).

Storage Duration: 0.5h

17.50%

14.91%

Storage Duration: 1h

34.21%

29.40%

Storage Duration: 1.5h

50.00%

43.57%

Storage Duration: 2h

62.80%

56.68%

Storage Duration: 2.5h

71.96%

66.82%

Storage Duration: 3h

78.09%

73.76%

Storage Duration: 3.5h

81.57%

77.78%

Storage Duration: 4h

95.52%

80.00%

Storage Duration: 4.5h

95.52%

95.52%

Storage Duration: 5h

95.52%

95.52%

Storage Duration: 5.5h

95.52%

95.52%

Storage Duration: 6h

95.52%

95.52%

Storage Duration: 6.5h

95.52%

95.52%

Storage Duration: 7h

95.52%

95.52%

Storage Duration: 7.5h

95.52%

95.52%

Storage Duration: 8h

95.52%

95.52%

Storage Duration: 8.5h

95.52%

95.52%

Storage Duration: 9h

95.52%

95.52%

Storage Duration: 9.5h

95.52%

95.52%

Storage Duration: 10h

95.52%

95.52%

Storage Duration: 10.5h

95.52%

95.52%

Storage Duration: 11h

95.52%

95.52%

Storage Duration: 11.5h

95.52%

95.52%

Storage Duration: 12h

95.52%

95.52%

Combined Cycle Gas Turbine (CCGT)

Combined Cycle Gas Turbine plants.

89.05%

89.05%

Combined Heat and Power (CHP)

Combined heat and power plants (large and small-scale)

90.0%

90.0%

Coal

Conventional steam generators using coal

86.56%

86.56%

Biomass

Conventional steam generators using biomass

86.56%

86.56%

Energy from Waste

Generation of energy from waste, including the generation of energy from:

(a) conventional steam generators using waste;

(b) anaerobic digestion;

(c) pyrolysis; and

(d) gasification

86.56%

86.56%

DSR

Demand Side response

84.28%

84.28%

Interconnectors

IFA (France)

N/A

66%

IFA2 (France)

69%

67%

Eleclink (France)

73%

71%

BritNED (Netherlands)

N/A

43%

Moyle (Northern Ireland)

26%

33%

EWIC (Republic of Ireland)

43%

33%

Nemo (Belgium

68%

50%

NSL (Norway)

N/A

87%

Table 3 – Conventional Plant De-Rating Factors3

We note that no technology class for renewable technologies or de-rating factors have been provided. The participation of subsidy-free renewables in the CM will be considered as part of the Five Year Review. As part of this, the Delivery Body is developing for offshore wind a new de-rating method.

What Next

The CM prequalification guidance published on 11 July 2018 contains the full process under which companies can apply to participate in either CM auction.


1 Source: BEIS, Capacity Market Auction Guidelines.

2 Source: BEIS, Capacity Market Auction Guidelines.

3 Source: BEIS, Capacity Market Auction Guidelines.