Today, the provisional results of the UK Capacity Market auctions were announced. These payments for power in 2018 are intended to ensure the UK has enough electricity to avoid blackouts. However, because of the Capacity Market design, this security of supply has not been achieved at least-cost and least carbon. Only one new gas power station, out of nine, was successful in their bid.
One flaw in the Market design is the assumption of the same price for a 1-year contract as a 15-year contract. Today proved that, as expected, it is more expensive to build new gas, compared to keeping old coal open. But only on a year-by-year basis – when a gas power station is open, it is very cheap to run. Also, old coal does not provide the same level of security – often breaking down, and reserving the right to close if it desires. Encouraging new efficient gas power stations would provide a cheaper, greener, more secure electricity system than we have at the moment.
Put simply, the UK Capacity Market is not helping affordability or decarbonisation.
As we show in our full Capacity Market briefing, today's auctions will add around £11 to the average electricity bill, but £7.59 of this will be going to the "Big 6" for existing power stations.
Sandbag Policy Analyst Dave Jones summed up today's auction result:
"With £293m being paid to old coal, the capacity market looks more like a subsidy scheme to keep heavy polluters online, rather than a mechanism to encourage new investment: only 5% of auction revenues will go to new investment.
It seems the capacity mechanism is actually slowing decarbonisation of the UK power sector."