The price of securing critical backup power generation for next winter has risen to a record, mirroring UK prices. Tighter supply when many old nuclear power plants closed and the few remaining coal-fired power plants were phased out.
Bid in Tuesday’s “capacity market” auction hit the highest level since the process was introduced by the UK government in 2014. Auctions award contracts for generators to be ready to meet demand if it suddenly spikes during the colder months.
The backup capacity process comes as the UK grows increasingly reliant on weather-dependent renewable energy sources. There are several types of auctions, with most backup generations guaranteed several years in advance.
However, the government also holds a final capacity auction each year to ensure generators with enough power will be on standby to turn on briefly next winter.
All capacity in Tuesday’s auction for winter 2022-23 will be contracted for 75 pounds per kilowatt, a record level. Energy consulting firm Cornwall Insight said the highest bid in previous comparative auctions was £45.
The final payment amount is passed on to the customer and although the cost is only a fraction of the domestic bill, the procurement of spare capacity has increased sharply due to rising energy prices for households. .
Industry regulator Ofgem announced 54% jump in average bills for more than 22 million households from April due to high global gas prices and customers are expected to face another sharp increase in October.
The latest auction is for around 5 gigawatts of capacity, meaning the total cost to the customer could be as high as £375 million. The level of bids, analysts said, has increased sharply due to higher search volumes than in previous years and outstripping numbers eligible to participate. This means that every generator is guaranteed a contract to be able to set the highest possible price.
Business secretary Kwasi Kwarteng said last month that he wanted to buy nearly 5.4 gigawatts through auction to reflect “uncertainties in the electricity industry”.
This, in effect, reflects the continued decline in UK nuclear power production and the loss of several major gas stations during the coronavirus pandemic as electricity demand plummets, analysts say. There is also uncertainty about whether some new generating capacity can be built on time amid global supply chain issues.
“We’re seeing the results of a lot of nuclear shutdowns and that some power plants run on gas,” said Richard Howard, research director at consulting firm Aurora Energy Research. big already mothballs from 2020 also not available.
Britain has only six nuclear plants in operation after the closure of Hunterston B in North Ayrshire last monthh with another – Hinkley Point B in Somerset – will follow in July. Four of the remaining five are scheduled to close by March 2028 at the latest.
Tom Edwards of Cornwall Insight said UK policy to phase out remaining coal-fired power plants by October 2024 was also “tough”. The Ratcliffe-on-Soar plant in Nottingham was the only coal plant participating in the auction.
