No place for large-scale CCGT in UK capacity market – costs study

26 October 2017 09:24 Source:ICIS

A high-profile UK government-commissioned review into the cost of energy foresees an “almost infinite” number of small, low-cost power generation units that it said could continue to prevent large-scale gas-fired plants from being successful in the country’s electricity capacity market.

“Lots of DSR [demand-side response] and storage” will also weigh in for the auctions, the report said, which would dampen prospects further for large-scale gas plants.

The Cost of Energy Review, headed by economist Dieter Helma and published on Wednesday, made a series of recommendations with decentralised supply, digitisation and other technological advances at the centre. The review’s aim was to propose a means of securing energy supplies while decarbonising the power system, all at a cost far lower than that attached to the government’s existing approach.

The review’s proposals do not amount to any shift in government policy or approach. Helm was commissioned on an advisory basis, and the report’s many recommendations would have to be debated and consulted on at length before any could be adopted.

The review will, however, provide ammunition for lobby groups across the industry, as well as food for thought for legislators and policy makers.

Unification

The review recommended a single “unified” auction model of power generation capacity to replace the systems the country currently has in place.

Under the proposals, feed-in tariffs (FiTs) and contracts-for-difference (CfDs) would be merged into an equivalent firm power (EFP) capacity auction.

“The costs of intermittency will then rest with those who cause them, and there will be a major incentive for the intermittent generators to contract with and invest in the demand side, storage and back-up plants,” the report said. It added: “The balancing and flexibility of markets should be significantly encouraged.”

The review also recommended a shift to a universal carbon price across the economy, as opposed to the UK’s existing price support tax, which only applies to power generation.

‘Few could list them’

Helm attacked the existing system in the UK, which has evolved step by step as the country and successive governments have sought to drive the low-carbon energy transition, labelling it vastly over-complicated:

“The scale of the multiple interventions in the electricity market is now so great that few if any could even list them all, and their interactions are poorly understood,” the report said. “Complexity is itself a major cause of rising costs, and tinkering with policies and regulations is unlikely to reduce costs.”

One such intervention is the electricity capacity mechanism, which came in for less of a bashing from Helm on grounds clearing prices have been much lower than expected.

Helm said that, with small-scale generation generally being successful in the capacity market auctions to date: “There appears to be the prospect of an almost infinite number of such smaller low-cost plants and lots of DSR [demand-side response] and storage” able to come to market. This would continue to oust large-scale power stations, for example the combined-cycle gas turbines (CCGTs) that won through in the first auction.

CCGTs have struggled in capacity market auctions to date with a number failing to secure supply contracts due to competition from lower cost alternative forms of capacity (click here to read story).

The full report is available here . jamie.stewart@icis.com

By Jamie Stewart