Capacity Market Auction Yields New Record for Energy Transition | T-1 Market Auction Awards Maximum Capacity
Record Capacity Awarded in UK's T-1 Capacity Market Auction
The UK's T-1 Capacity Market auction for the 2025-26 delivery year has broken records, awarding a total of 7.94 GW of capacity, a significant increase from the central target of 7.5 GW. This achievement was driven by an increase in available derated capacity and higher liquidity from existing units, particularly nuclear plants nearing the end of their operational lives.
The auction, which cleared in the eighth round at £35.79/kW/year, marked a 40% decrease from the previous year's clearing price. This is the lowest clearing price since 2020-21, a testament to the increased competition and liquidity in the market.
Key factors contributing to this decrease in clearing price and increase in capacity awarded include increased liquidity and competition, high participation of existing generating units, and the return of mothballed plants to the auction.
Nearly 87% of the offered capacity (9.12 GW) was awarded agreements, with about 79% of the awarded capacity coming from existing units. This included 3.64 GW of nuclear, 1.9 GW of combined-cycle gas turbine (CCGT), and some open-cycle gas turbine capacity.
In contrast to the UK, other markets like PJM in the US have seen capacity prices rise due to tight supply and growing demand, underscoring that local market conditions, generation mix, and auction design significantly influence outcomes.
The UK government has the potential to double the country's offshore wind capacity in the upcoming Contracts for Difference (CfD) auction, according to a renewable energy trade association. 14 offshore wind projects, representing nearly 10.3GW of new capacity, are currently eligible to bid into Allocation Round 6 (AR6) of the CfD auction.
In a move to increase transparency and trust, the Department for Energy Security and Net Zero (DESNZ) is considering the creation of a public Community Benefits Register to capture details of community benefits packages for onshore wind. They are also considering a mechanism for developers to formally sign up and endorse an updated protocol to increase trust within communities.
The government has announced plans to educate local communities about the benefits of onshore wind in England, in response to a consultation titled "Developing local partnerships for onshore wind in England" which took place from May to July 2023.
The updated Community Benefits Protocol will reflect the full range of benefits that communities could receive from onshore wind projects. Georgina Morris, head of Capacity Market Policy (Low Carbon Technologies) at the DESNZ, stated that the Capacity Market is becoming an "important part of the revenue stack" for energy storage projects.
The size of the budget for AR6 has yet to be announced, with its impact on the number of bidders likely to be significant. Chief executive of RenewableUK, Dan McGrail, urged Ministers to be ambitious when setting the auction budget and parameters for AR6.
The government has increased the CfD maximum strike price for offshore wind projects by 66%, from £44/MWh to £73/MWh, in advance of AR6. This move is expected to attract more investments in the renewable sector.
On February 26, 2024, the T-1 Capacity Market auction results were released, awarding a record 7.6GW of capacity across 277 units. The government's commitment to clean technologies is evident in the capacity awarded, with battery energy storage systems (BESS) receiving the highest capacity for clean technologies (655.16MW). Other clean technologies awarded capacity included pumped storage, solar assets, hydro power, offshore wind, and onshore wind.
The DESNZ plans to take ownership of the Community Benefits Protocol for England and publish it as official government guidance, further demonstrating their commitment to transparency and community engagement in the renewable energy sector.
The substantial increase in capacity awarded in the T-1 Capacity Market auction, despite the decrease in clearing price, signifies a boost in the energy sector's financing, contributing to the UK's industry growth. The government's ambition to double offshore wind capacity, as seen in the upcoming Contracts for Difference auction, further emphasizes the focus on renewable finance in the UK's energy sector.
