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Keep an eye out for today’s critical Capacity Market Auction

    National Grid’s latest Winter Outlook suggests that the UK’s electricity margins are dangerously narrow. Without emergency measures, de-rated capacity margins for the winter of 2016/17 would be at just 1.1%. This is a result of failings by both the UK Government and the European Union (EU).

    A number of EU initiatives have been forcing the premature closure of many coal fired power stations, leading to the UK’s dispatchable generation falling by 15 GW. At the same time, the UK has failed to create an environment to encourage the creation of new gas fired power stations to make up the shortfall in electricity generation.

    In its 2012 Gas Generation Strategy, the Coalition Government said that up to 26GW of new Combined Cycle Gas Turbines (CCGT) capacity would be needed by 2030. However, just one CCGT is currently under construction with a capacity of just 0.9GW. It is estimated that there should be a minimum 8GW of new CCGT already under construction.

    As the energy mix in the UK becomes more reliant on intermittent renewables, baseload power plants are often required to be on standby. This means that they are not fully operational and require subsidies, which is why the Government has introduced the Capacity Market. Regrettably, last year’s Capacity Market auction had a fatal flaw. It did not encourage the construction of desperately needed new gas fired power stations. Based on the provisional auction results from the T-4 CM auction for 2019/20, new gas plant equated to only around 10% of the Capacity Market’s gas contracts.

    In yesterday’s Daily Telegraph, Tony Lodge highlighted the importance of today’s Capacity Auction. To secure the UK’s energy supplies, this year’s capacity auction must offer contracts to new gas plant. Lodge estimates that around three to four large new CCGTs must be secured to attract investors into the energy sector and “keep the lights on”.

    This is critical for the UK’s energy security, and is certainly worth keeping an eye on.  

    Daniel joined the Centre for Policy Studies as Head of Economic Research in November 2015. He was promoted to Deputy Director in March 2017. Prior to joining the CPS, he worked in research roles for a number of parliamentarians. Daniel left the CPS in March 2018.

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    Julian Hawksworth - About 1385 days ago

    A good analysis. I also read the relevant article, in yesterday's Daily Telegraph. It highlights the fundamental flaw, of so called "renewables"; in the sense that they are "intermittent". Despite the Coalition Government's acknowledgment of our country's capacity problem, they certainly didn't solve it; and "we are where we are" (as they say)? The financing of a sufficient number of gas plants, is a real necessity for Britain. Short-termism in government circle thinking, continues to clash with what is in our country's national interest? And yet, with such an enormous government debt burden (which was certainly very much accelerated under Gordon Brown's administration); "keeping the lights" on will be a greater challenge than ever?

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