Post: Capacity Market auction shows great opportunity for batteries says GridBeyond’s latest Capacity Market White Paper

Capacity Market auction shows great opportunity for batteries says GridBeyond’s latest Capacity Market White Paper

The recent Capacity Market Auctions have resulted in high clearing prices, but they are unlikely to stay at these highs as constraints in the UK balance out according to GridBeyond’s latest Capacity Market White Paper.

National Grid ESO has confirmed that the latest T-4 Capacity Market auction (delivery year 2026-27) has cleared at £63/kW/year), topping last year’s record high of £30.59/kW/year. The T-1 auction (delivery year 2023-24) also cleared at £60/kW/year, down from the £75/kW/year seen in the last auction. The high clearing prices seen in the latest Capacity Market auction will provide a major boost for those units that were able to secure contracts. But the prices seen in this auction are likely to be a blip (driven by changing market pressures and costs of operation for thermal generation) and markets will likely return to being oversupplied over coming years resulting in falling revenues under the mechanism.

Auctions are generally still delivering higher prices for year ahead delivery. Batteries made up much of the new build capacity as the prices are not giving long term signals to build new generation, particularly gas fired plants. There is also potential that provisional awarded existing capacity under the T-4 auction could withdraw and instead wait for next year’s T-1 auction, to benefit from the higher prices seen.

In the latest round of auctions battery storage was a clear winner, with contracted MW up over 63% from the previous T-1 auction with 74 projects with a combined capacity of 627.44MW receiving contracts. Battery storage made up 10% of total winning capacity measured by nameplate in the T-4 auction, but only 3% measured by de-rating.

One of the most lucrative revenue sources for utility-scale batteries is real-time arbitrage, where storage units take advantage of market spreads. The value from arbitrage looks to be positive going forwards, with the high gas prices and more renewables being deployed, providing more opportunities for energy storage in the intraday and balancing markets.

GridBeyond Asset Development Director Chris Smith said:

“The Capacity Market auctions has in Feb’s T1 and T4 auction provided the price levels that have long been required to support new build projects. Its fantastic to see 3.3GW of battery capacity win allocation, which when built will enable National Grid ESO to support managing the grid at a lower cost, reducing dependency on gas-fuelled assets and reducing energy bills for UK consumers.”

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