New gas plants prepare to swamp UK power capacity market auction

14 September 2016 06:45 Source:ICIS

Almost 18GW of new gas-fired generation with planning consent could enter this December’s capacity market auction, through which contracts will be awarded to power plants to make themselves available to the market from the start of winter 2020, ICIS data shows.

Almost 10GW of consented gas-fired projects have yet to bid for government subsidy from the capacity market, the first auction of which was held in December 2014.

But despite proposed reforms to the capacity market designed to assist bidders of new-build gas plants, it remains unlikely that much of this capacity will qualify for contracts in this year’s auction.

The UK government said earlier this year that it will aim to procure 52GW of capacity this year. However, much of this target will be met by existing nuclear, gas, coal and interconnector capacity.

“Until we see the prequalified plant, it is difficult to know, even with the sparks we are seeing now, whether there will be room in the supply curve for one or more CCGTs [combined-cycle gas turbines],” Frontier Economics’ director of energy Dan Roberts said.

Profit margins for gas plants, indicated by spark spreads, have risen to their highest levels for years in many European countries and in recent sessions have been at their highest in the UK since the introduction of a carbon tax on power generators.

Even if proposed changes to the capacity market auction pushed small-scale diesel generation out of the reckoning, it is no guarantee for allowing more CCGT to qualify, Roberts said.

Confirmed entrants

Utility SSE’s chief executive Alistair Phillips-Davies confirmed in August that the company will seek to enter both its Keadby 2 and Abernedd projects into the auction this year.

The company has recently applied to change existing planning consent for Abernedd to include the option of building a 299MW open-cycle gas turbine (OCGT) instead of the previously consented 870MW CCGT (see EDEM 8 September 2016).

The company also sounded an upbeat note on plans for its 1.4GW Seabank CCGT, which it revived earlier this year following a halt to development in late 2014 (see EDEM 18 May 2016). However, SSE has not confirmed whether it will enter the plant into this year’s capacity market auction.

Intergen and Carlton Power have previously indicated they are likely to enter their respective plants into this year’s auction following successive auction failures. ScottishPower also said earlier this year it remained committed to its 1.8GW Damhead Creek project, which consists of options to build a large CCGT and smaller OCGT units (see EDEM 22 April 2016).

Possible new entrants

The 470MW North Killingholme CCGT, which secured planning consent in September 2014, could be one project that debuts in the auction this December.

“We’re awaiting the right moment and right circumstances to enter the capacity market,” one of the project’s directors Florent Maes told ICIS last week.

Calon Energy, which operates three CCGTs in the UK, also acquired the rights to build the 2.4GW Willington CCGT from RWE earlier this year. All three of the company’s existing CCGTs were successful in earning contracts in previous auctions.

Powersite, which acquired planning consent for the 1.2GW Drakelow CCGT from German utility E.ON last year, also acquired an extension to its planning consent until October 2018 earlier this summer.

The UK government has prioritised the construction of new gas-fired generation to replace old coal-fired plants that will be obliged to close by the end of 2025 under legislation that was proposed at the end of last year (see EDEM 18 November 2016).

By Henry Evans