Government sets capacity auction at 53GW
30 Jun 2014
The UK’s first ever electricity generating capacity auction will take place later this year, the Government confirmed today.
The Department of Energy and Climate Change (DECC) this morning announced that the first capacity market auction will run this December, opening up 50.8GW of generating capacity to bidders for delivery in 2018/19.
In total DECC intends to procure 53.3GW for the first capacity year in 2018/19, with the balance to be contracted one year ahead of delivery in 2017.
With today’s announcement we have the final piece of the jigsaw of our detailed energy security plans
Energy secretary Ed Davey
By setting the auction dates, energy and climate change secretary Ed Davey claimed the government had “defused the ticking time bomb of electricity supply risks”.
“There was a real risk back in 2010 that an energy crunch would hit Britain in the middle of this decade and lead to damaging power cuts,” said Davey.
“But the excellent news is that with today’s announcement we have the final piece of the jigsaw of our detailed energy security plans and can now say with confidence that we have defused the ticking time bomb of electricity supply risks we inherited.”
This year’s auction of generating capacity will establish the government’s planned capacity payment regime, aimed at encouraging investment in reserve electricity capacity capable of balancing the grid as more and more intermittent renewables such as wind farms come online.
A series of auctions for reserve capacity will be held where bidders – either owners of idle generating plant or major consumers – will vie to be paid for either increasing or freeing-up capacity on the grid at critical times.
This capacity mechanism could be a key driver in establishing a thriving demand side response market in the UK, where major energy users such as process firms reduce their demand on the grid at peak times in return for payment.
Capacity payments to industrial users already occur in the US, and last year 28GW – 6% of peak demand - was made available through so-called demand side response (DSR) providers.
Today’s announcement of the first auction is restricted to generating capacity, with the DSR portion being held back to be auctioned just a year in advance of delivery – a concession made by the government to recognise the fact that it would be extremely difficult for industrial users to calculate their energy needs four years in advance.
