Capacity Auction, the consequence, unintended or intended?

The National Grid T-4 Capacity Market Auction 2014 - was it a success or was it a failure? An opinion on EMR.

The Electricity Market Reform (EMR) has a grand intent. It is to provide future security of supply for the UK. As part of this foreward looking vision EMR was, as a consequence, supposed to:

1. ensure existing plant remains operational

2. encourage new investment in power stations

It does not take an expert to see that the successful bidders are mostly encumbant players. So on this point, EMR has been a failure.

Only 5% of new build capacity secured a deal with 64% of contracts going to current plant, 30% awarded to refurbishing or pre-refurbishing units. Of the 9 pre-qualified major new gas capacity units (>100MW), only 2 secured a contract, mainly due to the fact that they already under construction. With an aging fleet of power stations and current carbon reduction commitments this does not represent long term security of supply. So on this point too, EMR has been a failure.

Let us move on and test the energy of politics .....

The 2018/19 Capacity Auction concluded on 18th December 2014. The concluding clearing price was set at £19.40 per KW. This means a lower than expected annual price to the consumer of approximately £11 per annum. Great news for our bills….or is it?

With a general election only weeks away, and with retail energy prices continuing to be a hot topic in the media, one can understand why government and leadership are prepared to sacrifice the longer term view for the shorter term gain.Setting a clearing price that does not encourage new entrants to market really does compromise the longer term and the future of our children, and our children's children. Finally on this point, unfortunatley, EMR has presented itself as a failure.

The deeper question to pose and debate is:- what price would we really be willing to pay to guarantee electricity supply for our children?

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