Evaluating the T-3 Capacity Market auction

On Friday 31 January the EMR Delivery Body (National Grid ESO) published the provisional results of the T-3 Capacity Market (CM) auction for the delivery year 2022-23. The clearing price was £6.44/kW/year, the auction procured 45,058.8MW of de-rated capacity.

Lee Drummee Analyst at Cornwall Insight takes a look at the results of the lowest ever clearing price in a multi-year (T-4 or T-3) CM auction.

“This auction saw the vast majority of successful capacity coming from existing generation, which accounted for 36.9GW or 81.9% of total capacity. Such a high percentage of successful existing capacity indicates that the existing plant is willing to take low prices as an additional revenue stream rather than nothing at all.

“For the first time renewable generation participated in the CM, and new build renewables were more successful than many were anticipating, with five of the seven projects taking part in the auction being awarded agreements.

“Interestingly, interconnectors represented a further 5.9GW of successful de-rated capacity, with 2.8GW of this awarded to new build interconnection. Currently, the conditions for new build interconnectors are more favourable than other new-build generation. This is due to the Cap and Floor regime and other EU directives insulating them from network charges, allowing them to compete against generation and demand reduction. This is something that should change in the future if and when foreign capacity can participate in CM auctions.

“The focus will now shift to the T-4 auction which starts on 5 March for capacity in the delivery year 2023-24. Whether further expected coal closures and the opting-out of some existing nuclear plant will have a material impact on the clearing price in this auction remains to be seen.”