New gas-fired power plants may not be required under the UK’s new capacity mechanism, according to experts advising the government on electricity market reform.
On Monday, energy secretary Ed Davey outlined final details of the auction for future power capacity that the government will launch later this year. The mechanism has been designed to guarantee over 50GW of generation capacity in 2018/19.
Confirmation that the government is attempting to procure over 50GW of capacity from the auction prompted independent developer Carlton Power to announce it would enter a new 2GW combined-cycle gas turbine (CCGT) into the first bidding process due in December ( see EDEM 30 June 2014 ).
The expert opinion, which clearly points to potential oversupply from 2018, will do nothing to alter the unfolding backwardation of the far curve at the UK wholesale electricity market, where contracts for delivery further out are valued progressively cheaper by the market. This suggests a decidedly bearish Summer ‘18 contract, which ICIS will begin to price from October of this year, with a similarly weak Winter ‘18 to follow.
The expert report, compiled by a four-strong panel and published in tandem with Davey’s announcement, revealed concerns over National Grid’s role in recommending the level of capacity to be procured at auction, which it said “inevitably precipitates a potential conflict of interest” because of National Grid’s primary duty to ensure system security above consumer costs.
The panel was in consensus that National Grid had taken an “overly conservative view on a few key assumptions, most notably interconnector flows” and that “a little more effort to procure demand-side reserve and accelerate interconnector commissioning, as well as expecting more coal plant to be offered into the auction, could be enough to avoid new CCGTs”.
But National Grid has advised the government that a mix of existing and new plants, as well as plant that is currently mothballed, will be required to be available to the grid in 2018/19.
It has also admitted taking a “conservative approach” with interconnection estimates because such capacity does not currently form a part of the capacity mechanism and flow directions are hard to predict four years in advance.
The Department of Energy and Climate Change (DECC) said the panel had played an important role in ensuring that National Grid’s analysis is “fit for purpose” but that the system operator would not make compromises on supply security.
“There is uncertainty on how interconnectors will actually operate under the new market rules – it is right that government takes a cautious approach,” a DECC spokeswoman said.
“But we agree with the panel’s recommendation that National Grid commission further work on, and statistical analysis of, the deliverability of UK-Continent interconnectors during stress hours,” she added.
The UK has 4GW of installed interconnector capacity with two additional links to the continent totalling 2GW in planning and on schedule to be operational before the end of 2018. Henry Evans