Surprising decision by the Secretary of State for BEIS regarding the Capacity Market auction

An interesting and surprising decision by the Secretary of State for BEIS regarding the Capacity Market auction parameters for the upcoming T-1 auction being held on 15 February. The procurement target has been lifted from 4.5GW (as set in the draft parameters in July 21) to 5.361GW. This is notably above National Grid ESO’s recommended target of 4.7GW, with the Secretary of State attributing the decision to “the broader uncertainties within the power sector.” With wholesale power prices remaining volatile and consistently above the background average, and with energy costs high on the political agenda, extra capacity could support wholesale cost reduction and system security.

The 5.361GW target also equals the total amount of prequalified and conditionally prequalified capacity for the auction (as of 5 January). With only ~3GW of existing generation in the auction, a collection of new build assets are set to win agreements. Another record high clearing price is near guaranteed.

Meanwhile, the T-4 auction (being held 22 Feb) procurement target has been reduced by 500MW to 42.1GW to “account for small technical considerations”, including the prequalification decisions of nuclear plant and a consequential lower maximum non-delivery risk. Our latest view on auction clearing prices was published in December, and our updated views are due to be released prior to the upcoming auctions.

Our Capacity market forecast

The ‘Capacity Market forecast’ provides a comprehensive analysis of the Capacity Market auctions (T-4 and T-1). The subscription report includes a detailed forecast of the clearing prices for upcoming T-1 and T-4 auctions, which will allow you to better formulate your business’s bidding strategy as well as understand the values that could be achieved through this revenue stream.

Capacity Market auctions can be a valuable income stream for generators and those with demand-response assets, however, given the wide range of factors that can impact bidding behaviour and clearing prices, forecasting the results and costs of the Capacity Market can be a challenge. Cornwall Insight’s ‘Capacity Market forecast’ provides a view of short-term and long-term auction prices, helping you understand the market dynamics that may impact upon prices achieved.

The report is released to coincide with upcoming auctions and is updated throughout the year. It provides a longer-term view of the Capacity Market with an outlook to 2050 of market prospects. Long-range forecasting is critical for those looking to participate in the Capacity Market.

Not only does this report forecast the upcoming Capacity Market auction clearing prices but, the updates inform you of key changes to scheme rules as well as information on the pre-qualified and fully qualified plant. Additionally, you will receive our analysis of each set of auction results.

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