UK coal plants under threat as capacity auction breaches £15.00/kW

Some UK coal-fired power plants could miss out on contracts in the latest electricity capacity market auction for next winter, after the clearing price dropped below £15.00/kW late on Thursday afternoon.

The auction is being held to allow the government to procure 53.65GW of guaranteed capacity for one year from the start of winter ’17 (see EDEM 30 January 2017).

But with bidding in the descending clock auction dropping below £15.00/kW, just over 55GW of de-rated capacity remained in competition for a contract at the time of writing. This was 2GW above the government’s procurement target for the auction.

This raises the prospect that some older coal plant will have exited the auction at a higher bidding round because dwindling returns in the wholesale market require them to seek a higher price in the auction.

Utility SSE was planning to renege on a capacity market contract awarded to its 2GW Fiddlers Ferry coal plant for the start of winter ‘18 until the prospect of an earlier auction caused the company to reverse its decision.

The contract was awarded in the first capacity market auction in December 2014, which cleared at £19.40/kW. Bidding in lower than £20.00/kW would be unlikely, according to one trader.

And Cornwall Energy consultant Tom Edwards agreed. “Parties have to start looking at their bids now,” he said, after the auction bidding reached £20.00/kW. “Why accept an agreement with penalties and obligations at a lower price?”

While the prospect of coal plants missing out on contracts could hasten their closure and remove more conventional generation from the electricity market, the security of a guaranteed quantity of capacity has kept the market for winter ’17 soft. “I see this as bearish ultimately,” the trader said.

If some coal-fired capacity does miss out on contracts, smaller embedded generation that connects off-grid is expected to make up the total.

The auction will resume on Friday morning at 09:00 London time and will clear at some point during the day. Results are likely to be published on Monday morning. henry.evans@icis.com