1.5 GW new gas capacity clears UK capacity market auction

London — Over 1.5 GW of new gas-fired generation capacity were awarded contracts in the UK's four year ahead (T-4) Capacity Market auction Friday, including an 804 MW, 15-year new-build contract for SSE's in-construction Keadby II combined cycle gas turbine plant, EMR Delivery Body data showed.

The auction for delivery 2023/24 procured a total 43.748 GW at GBP15.97/kW/year ($20.92/kW/year). It had target procurement of 43.3 GW. Some 59.42 GW entered the process.

At close to GBP16/kW/year the clearing price was a marked increase on the recent T-3 auction for 2022/23, which cleared at GBP6.44/kW/year.

This reflects an expected tightening in capacity margins in 2023/24 due to coal plant closures, although the price was not enough to pull in open cycle projects planned by Drax.

Just 1.3 GW of existing coal plant (three 440 MW units at Uniper's Ratcliffe-on-Soar plant) remained in the auction through clearing, a further 2.7 GW dropping out at Drax and at EDF's West Burton A sites.

Of total capacity cleared, 33.98 GW of existing capacity gained one-year agreements and 1.798 GW of new capacity gained (mainly 15-year) contracts.

In addition to Keadby II CCGT, some 681 MW of gas-fired reciprocating engines gained contracts, as did 24 MW of open cycle gas turbines.

Remarkably, more new subsea interconnection capacity (2.637 GW) gained contracts than existing interconnection (2.635 GW).

This was due to three big in-construction projects accepting one-year agreements – the NSL cable to Norway (1.232 GW contracted), the IFA2 to France (715 MW) and ElecLink to France (690 MW).

New battery storage saw an uptick in fortunes, meanwhile, with 94 MW of one hour and 20.5 MW of two hour storage capacity gaining agreements.

Large new-build projects that pulled out of the auction ahead of clearing included EP UK Investment's (de-rated) 1.5 GW King's Lynn CCGT, Drax' 1.6 GW CCGT conversion at Selby plus 284 MW open cycle projects at Millbrook and Abergelli, ESBI's 304 MW Corby gas plant and Intergen's 285 MW Gateway open cycle gas plant.

Commenting on the results, Royal Bank of Canada noted Drax' withdrawal of new-build plans "despite the price being at a level that we believe would have been close to that required to achieve targeted returns for these options (particularly OCGTs)."