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2019

Capacity Market oversupply continues – but for how long?

Tom Edwards Senior Consultant

On 13 May 2019, Secretary of State for Business, Energy and Industrial Strategy Greg Clark wrote to the Delivery Body to update the target procurement volumes for the replacement T-1 2019-20 capacity auction which is being held in June this year. The Delivery Body recommended a 2.3GW drop in the amount of capacity to be bought from the original Secretary of State letter, issued in July 2018, including 1.3GW of capacity which has opted out of the auction but chosen to remain operational, 700MW of capacity from plant commissioning early, and 400MW from long-term STOR, offset by a 100MW increase of autogeneration participating in the auction. The Secretary of State, in his 13 May letter, informed National Grid ESO the target procurement would be 2.7GW.  Part of a driver of the change in those opting out but remaining operational will be the uncertainty surrounding the short-term future of the Capacity Market (CM), following the successful legal challenge from Tempus in November last year. The European Commission is currently investigating the legality of the scheme, in relation to EU State aid guidelines – BEIS expects the scheme to receive approval before October 2019, but there are no guarantees. In any event, the likely price in the auction will be low. Oversupply of supply to auction demand remains a big influence on price. We have seen in previous auctions that oversupply – particularly of existing generation and demand-side response (DSR) – leads to low clearing prices. Oversupply will face some headwinds in the medium term. Coal ...

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