March 3, 2021

UK T-1 capacity price surges

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2.25GW of capacity cleared in the T-1 capacity auction yesterday at a price of 45 £/kW, approximately double the previous highest UK capacity price level. This followed a relatively late notice decision by the government to increase the T-1 auction demand target by 2GW.

The chart summarises sources of successful and exiting capacity. Existing capacity that cleared was dominated by one of the Ratcliffe coal units, the ageing Corby CCGT and the East-West Irish interconnector as well as some smaller mostly distributed capacity (e.g. engines, batteries & EfW).  EDF’s West Burton A coal plant looks to have fallen out of the auction below the 50 £/kW price level, reflecting challenging coal plant economics vs current forward curves. The auction also pulled forward some new build capacity (mostly engines and batteries).

As we flagged in this week’s feature article, the T-1 auctions are less price responsive and less competitive (with just over 6 months to delivery). This means procuring large volumes at the T-1 stage at short notice is likely to be expensive. It also challenges the logic of diverting volumes into the T-1 auction going forward (vs the more liquid & responsive T-4 auctions).

UK T-1 capacity price surges