Britain’s energy market is under the spotlight – for all the wrong reasons

Carrington gas power station, Greater Manchester

Britain badly needs new power stations but current national policy is working against that, argues an industry insider. Instead we have a ‘sticking plaster’ strategy.

Great Britain’s energy market, once the envy of free-marketeers after Margaret Thatcher ended decades of nationalisation in the 1980s, is once again under the spotlight – for all the wrong reasons, says businessman Peter Hughes at PEI.

The current Prime Minister Theresa May is fond of referring to the UK’s “broken energy market”. While she may use the phrase to justify a cap on consumer energy bills, she could just as easily apply it to the failure of successive governments to encourage the building of new power plants.

As old coal and aged gas and nuclear power plants head towards decommissioning, the UK faces the possibility of a shortfall in its future electricity supply that cannot be plugged by intermittent renewables alone.

The Capacity Market Mechanism is meant to eliminate this risk. The Capacity Market auctions allow power plant owners and developers to bid for fixed payments, either one year or four years ahead. In return they ensure the capacity is available when the grid needs it.

At first glance, results from the latest T-4 auction to secure capacity in four years’ time appear to suggest the UK energy market is in perfect health. The grid secured the 50.4 GW of reserve capacity it was looking for in 2021/22 at the bargain basement price of £8.40 per kilowatt (kW).

Unfortunately, a closer examination of the results reveals that, far from being in good shape, the prognosis for the future appears bleak.

The results

Some 50.4 GW of capacity was secured in February’s T-4 auction; this was dominated by existing generating capacity.

The big winners were owners of existing gas-fired power plants, which accounted for much of the 43.3 GW of existing capacity to secure payments (more if you count the refurbished capacity).

While coal-fired plants have been successful in previous auctions, just two sites secured capacity this time round, leading some to speculate many UK coal-fired power plants will need to close as they are economically unviable without the support of capacity payments.

But just 767 MW of new generating capacity managed to secure payments – just 1 per cent of the total capacity secured and a new low for these auctions, which have been running since 2014.

Treating the symptoms

This 767 MW of new capacity came from small scale, low-cost, gas engines. Instead of being a solution that addresses the cause of a future energy shortfall – a lack of large-scale, flexible and highly efficient capacity to replace what is being lost over the next few years – the T-4 capacity market auctions now appear to be delivering a “sticking plaster” strategy.

Rather than encouraging investment in technologies such as the latest combined cycle gas turbines (CCGT), the auctions encourage short-term solutions that do little to improve the UK’s long-term security of supply.

Continued here.

via Tallbloke’s Talkshop

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March 2, 2018 at 09:09AM

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