A new government policy designed to ensure the UK's
future energy supply appears to have successfully incentivised
companies to build over two gigawatts of new gas power, to sit
alongside nine gigawatts of coal and biomass power. It should
ensure the UK will have at least 48.6 gigawatts of fossil fuel
power stations available in 2018.
The Department of Energy and Climate Change today released
results of its first capacity market auction. It
guarantees new gas plants will get paid £19.40 for each kilowatt of
power capacity companies make available at the flick of a switch.
The auction's biggest winner was gas power, with around 25
gigawatts of new and existing gas power plants receiving
While some have emphasised the lower than expected price as good
for consumers, it may also have a knock-on effect on the UK's
decarbonisation plans. We take a look at the auction's result, and
what it may mean for the UK's future energy mix.
The capacity market
The government introduced the capacity market to try and ensure
there is always enough power generating capacity available to meet
demand, even when intermittent renewables are generating less
electricity. The capacity market offers companies a set price if
they promise to keep a particular amount of generation available,
should it be needed.
To agree the price, this week the government conducted a
'descending auction'. The auction took place over four days, with
the government and companies eventually settling on a price of
£19.40 per kilowatt yesterday afternoon.
The auction worked like this: In the first round, the government
offered companies £75 for each kilowatt of capacity they guaranteed
to provide. At this high price, the power companies offered much
more than the 48.6 gigawatts of power the government wanted to
secure for 2018/19. The government then reduced the offer by £5 in
the next round, and every subsequent round, until enough companies
dropped out to make the bids match the 48.6 gigawatts the