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Power auction casts doubt on extra capacity plans
December 9, 2016 / 7:57 AM / a year ago

Power auction casts doubt on extra capacity plans

LONDON (Reuters) - Prices in Britain’s latest auction for back-up electricity came in well below expectations, casting doubt on how much extra capacity utilities will commit to building to ensure the country avoids winter supply shortages.

Autumn mists sit behind electrical pylons on the river Tummel near Pitlochry in Scotland, Britain, October 3, 2016. REUTERS/Russell Cheyne

Thursday’s auction for 2020/21 supply cleared at 22.50 pounds per kilowatt (kW)/year, while analysts have said a price of 35-45 pounds was needed to spur new gas plant investment.

Britain began capacity auctions in 2014, looking to head off future power shortages as coal plants close and as low electricity prices dissuade investors from building new capacity.

Plant owners are paid to make available back-up power at short notice.

Utilities Centrica, SSE, Drax, EDF Energy, RWE, E.ON, Scottish Power and Uniper were among 166 applicants provisionally awarded capacity agreements.

Contracts for 52.43 gigawatts (GW) of electricity were awarded in the auction on Thursday.

“5.8 GW of existing capacity exited the auction above the clearing price and is now at increased risk of financial closure as a result in our view,” analysts at Barclays wrote.

“Notable plants to miss out on capacity payments include SSE’s Peterhead and Fiddler’s Ferry stations... and (on first look) Drax’s new (gas) projects – with the company having previously stated that they would hold back these projects until the auction cleared at a sufficiently high price,” they wrote.

There are concerns Britain may face electricity supply shortages over the next few winters as coal plants close. The government has said it wants to have up to 26 GW of new gas generation built by 2030.

“It appears that the only successful ‘new’ large (gas) projects were extensions or significant refurbishments of existing sites – thereby reducing investment cost requirements,” the Barclays analysts wrote.


The government said the auction had brought forward a range of new generation, including Centrica’s 370-MW gas-fired plant in King’s Lynn and InterGen’s 300-MW extension to its gas plant in Spalding.

SSE said it had secured agreements to provide 3,239 MW of 2020/21 capacity but its Peterhead gas plant and Fiddler’s Ferry coal plant were not awarded agreements.

It said the auction results would not affect its operational stations, which would be available this winter.

Drax secured contracts to provide 1.2 GW of capacity from existing units. On Tuesday it said planned to buy four open-cycle gas turbine plants with a capacity of 1.2 GW but these did not secure agreements.

“Our plans remain unchanged – the acquisition of the four rapid response OCGT projects is a long-term investment,” a Drax spokesman said.

Britain’s National Grid, which operates the 2-GW Interconnexion France-Angleterre (IFA) power link with French grid operator RTE, won a contract for almost 1.2 GW.

National Grid said the auction results would remain provisional until confirmation by Britain’s secretary of state for energy on Dec. 20.

Additional reporting by Kanishka Singh; editing by Dale Hudson and Jason Neely

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