UK Power Capacity Auction Sets Record Price in Tight Market

The UK’s capacity market auction for 2027-2028 – designed to pay power producers to provide additional capacity to the grid in times of high demand – cleared at a record-high price for a four-year-ahead auction.

The clearing price at the auction on Tuesday was $82.20 (£65.00) per kilowatt (kW) per year - the highest ever for an auction that has been held four years in advance, according to the provisional results published by National Grid’s EMR.  

A total of 42.83 gigawatts (GW) of power capacity was procured at the auction out of a target capacity of 44 GW.

Existing power-generating units secured 77.5% of the capacity entering the auction, existing interconnectors – another 13%, while power plants yet to be built secured 3.9% of the capacity awarded in the auction, the data showed.

The record-high clearing prices were not unexpected, as analysts see the UK capacity market as tight in four years’ time.

Early this month, Bloomberg reported, quoting estimates from commodity research firm ICIS, that the four-year-ahead (T-4) capacity market auction, awarding contracts to generators to have a power supply available at peak demand periods, could clear at a price as high as $86 (£68) per kilowatt per year.

Before this week’s auction, the previous record-high for the four-year-ahead (T-4) capacity was set at the auction last year, at a price of $80 (£63) per kW per year.  

The highest-ever price for a capacity market auction was during the 2022 year-ahead auction, which cleared at the maximum price of $95 (£75) per kW per year.

This year, the government also has a maximum cap of $95 (£75) per kW per year for the year-ahead and four-year-ahead capacity auctions.

Commenting on the results of the latest four-year-ahead auction, Jefferies analysts wrote in a note carried by Reuters, “The high clearing price implies tight supply/demand dynamics in the UK power generation market and offers some protection to generators against gas/carbon driven weakness in wholesale power prices.”   

By Tsvetana Paraskova for Oilprice.com

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