Late on Friday evening DECC slipped out a very interesting spreadsheet detailing all the bidders to have qualified for the UK's first capacity auction taking place this December, for electricity capacity to be available in the Winter of 2018/19.
An associated PDF had some lovely looking graphs in it but, on closer inspection, these didn't really provide any answers to some of our most pressing questions, so we took a look at the data ourselves and produced a briefing. We found that DECC’s clumsy Capacity Market will actively subsidise 45-year old coal power stations to stay open, and will consequently crowd out opportunities for new gas power stations to be built.
Potential capacity far above demand
As predicted, there is a lot of potential capacity around that is more than capable of keeping the lights on – but the introduction of the capacity market could be having some pretty perverse effects. The most absurd of which is handing a lifeline to 6GW of inefficient, old coal that would otherwise have shut and be replaced by newer, more reliable, cleaner kit in the early 2020's.At DECC's insistence, the capacity market is designed to be 'carbon blind'; in other words it explicitly doesn't take account of how inefficient or dirty a source of capacity is. As a consequence, three old coal stations (Eggborough, and EDF's West Burton and Cottam) have now pre-qualified for lucrative 3 year contracts that will pay for their owners to fit the NOx clean-up equipment needed to carry on operating well into the 2020's.
Even worse, the rest of the Big Six who also have old coal plant still have time to follow suit and bid in next year.
If all this coal sticks around, of course, that means less new capacity and demand- side response solutions will be needed. Unless the 8GW of pre-qualified new gas stations, which can qualify for longer 15 year contracts, can come in with cheaper bids than the refurbishing old coal, they will not get a look in – so much for George Osborne's gas 'strategy'. Spinning this more positively it is at least clear now that we don't need the coal to keep the lights on.
New competition for large-scale gas
Another unexpected turn of events is that new, large-scale gas is facing competition from another source: new, smaller, distributed gas stations. Again, efficiency is likely to be low and in terms of future-proofing, while it is just conceivable that new large-scale gas stations can be fitted with CCS, capturing a host of smaller distributed sites looks to be impossible. A lot of this new small gas capacity is just under the threshold above which they would be caught by carbon caps and have to pay for their carbon emissions. So it seems like quite a few companies have spotted the capacity mechanism gravy train and decided to jump on board, with the partial coverage of the UK's carbon policy providing them with the perfect loophole to exploit.
All in all it looks pretty grim if your main interest is in securing a swift, affordable, secure transition to a low carbon economy. Just what can be done about it is not yet clear but if nothing changes, the results of the capacity market auction on December 24th could see very valuable presents being handed to old coal and small gas operators. Happy Christmas everyone!