A recent UK power generation auction intended to secure energy supplies has been predicted to cost billpayers around £3bn ($3.79bn).
The latest T-1 Capacity Market Auction, part of an electricity market reform plan that has been running since 2014 and pays providers for making supplies available at short notice, concluded on Tuesday 20 February. A total of 7.64GW of capacity agreements were awarded at an auction price of £35.79 per kilowatt (kW) – 40% less than the £60/kW price seen in the 2023/2024 auction.
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However, experts have suggested that the cost of these auctions could end up being reflected on the electricity bills of UK consumers. Sam Hollister, head of energy economics and finance at LCP Delta, said: “By this time next week, the UK Government will have run two separate auctions for power generators, a move that we predict could cost UK billpayers over £3bn to secure our electricity supplies. This week’s auction saw a procurement of £273m to ensure the lights stay on in 2025.”
Hollister noted that next week’s announced T-4 auction could also be a significant expense, adding “the cost for this auction alone will be over £2.6bn”.
Several major players in the UK energy market secured agreements in the T-1 round. SSE Thermal has provisionally secured agreements for 1.37GW of derated electricity generation capacity, while EDF landed extensions for its nuclear plants into 2025.
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BESS were a surprising big winner for this auction round after being awarded 655.16MW of capacity. BESS are predicted to become an increasingly important part of the UK’s electricity system in the coming years, as the shift to renewables requires a more flexible and agile grid to respond to fluctuations in generation.
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By GlobalData
