Although the annual Capacity Market electricity generation in Britain will be a few weeks after Christmas this year, the story of Jesus’s birth seems to foreshadow the fate of new electricity generators in the auction. According to the gospel accounts, Mary gave birth to Jesus in a stable because there was no room for them in the inns of Bethlehem.
The Capacity Market is intended to provide enough generation capacity to meet the demand for electricity at times when output from renewables is low. These days, a Capacity Agreement is vital for new power plants to have a viable business case.
In a recent article, I suggested that the main themes of this year’s auction would be storage, demand side response (DSR) and reciprocating engines. I stuck my neck out and predicted that new combined cycle gas turbine (CCGT) plants would miss out yet again this year. The list of prequalified bidders was released last week, and preliminary analysis suggests that CCGT is not the only technology that is likely to be confined to the stable.
Existing plants will be first in the door
About 50.1 GW of capacity is up for grabs in the auction. Existing generation plants with total capacity of 47.6 GW will be competing for a share together with 2.5 GW of existing storage (pumped hydro) and 2.3 GW of existing interconnectors. Precedence suggests that not all of these are likely to be successful in the auction, but based on historical success rates for these categories, I calculate that about 46 GW of existing assets could be awarded Capacity Agreements. The anticipated make-up is shown below.
That leaves about 4 GW for the remaining bidders to fight over. In the fray will be new-build generators, existing plants that have refurbishment plans, new storage (mostly batteries), new interconnectors and demand-side response. The chart below shows how the candidates stack up against the prize.
Who is likely to get in?
The chart above indicates that the competition amongst new entrants will be fierce. So, what technologies are most likely to be successful? Nearly 3 GW of demand side response has prequalified for this auction, which is a significant increase on 0.7 and 1.8 GW in 2015 and 2016 respectively. Based on historical success rates, there is a decent chance of about 2.2 GW getting through.
That leaves about 1.8 GW for the others. The capital costs of refurbishing a plant are generally lower than those for a new plant, so my analysis (based on results from previous auctions) suggests that about 0.7 GW could go to refurbished assets.
The net result is that new-build generators, new interconnectors and storage are likely to be fighting for about 1 GW of the pie. Mere crumbs. Battery projects have been dealt a huge blow recently with the announcement of de-rating factors based on discharge time and distributed generators have had their “embedded benefits” trimmed since the last auction. These developments have introduced a measure of uncertainty.
Interconnectors could be the dark horses in this auction. The Nemo interconnector with Belgium (de-rated capacity of 750MW) is entering the T-4 auction for the third time, having been unsuccessful in previous editions. It is the debut for the ElecLink (690MW de-rated) and IFA2 (715MW de-rated) interconnectors this year. According to the National Grid Interconnector Register (30 Nov 2017), ElecLink is already under construction and IFA2 is in the “scoping phase” and Nemo is awaiting consents. There is therefore a decent chance that at least one of the new interconnectors will take a significant share of the pie.
No room in the inn
This all points to a bleak outlook for new-build CCGT. If any new-build generation is going to be successful, it is likely to be distributed reciprocating engines. Again, the same old story, but at much lower volumes compared to previous years.
If CCGT is left out in the cold again this year as my analysis predicts, there is still some encouragement for project developers this Christmas: the little child excluded from the inn all those years ago eventually made his mark on the world. He had a to wait a few years though.