Post: GridBeyond publishes its latest Capacity Market White Paper

GridBeyond publishes its latest Capacity Market White Paper

GridBeyond’s launches its latest Capacity Market white paper looking at the auctions winners and losers and at long term strategies for businesses.

The provisional results of the T-4 2027-28 Capacity Market auction were published on 27 February with a total of 42,831MW in capacity agreements awarded to capacity market units at a record high clearing price of £65/kW.
Separately, T-1 Capacity Market auction cleared at £35.79/ kW/year. In total, 7.6GW of capacity was awarded across 277 capacity market units. Although the £35.79/ kW/year value achieved is lower than previous T-1 auctions, the aggregate capacity of CMUs awarded agreements has increased compared to previous auctions.

The high clearing prices seen in the latest T-4 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 relatively tight auctions, especially in the T-4) and markets will likely return to being oversupplied over coming years resulting in falling revenues under the mechanism.

However, auctions are generally still delivering higher prices and not giving long term signals to build new generation, says the analysis,
As for previous capacity auction battery storage was awarded capacity agreements in both the T-1 and T-4 auctions, however much of the capacity awarded is for long duration contracts, so degradation must be built in at the beginning or cells must be replaced over the lifetime, which will bring challenges for battery operators and developers.

Finally, a significant proportion of new build capacity receiving agreements in both the T-1 and T-4 auctions was gas fired. Given the ongoing high market prices for gas, which are likely to be compounded by recent geopolitical issues, there is a risk that some of this capacity may not be built.

Secondary trading

One aspect of the capacity mechanism that has not yet received much attention is the secondary trading of capacity agreements. This is when units to transfer their secured Capacity Market agreements to other parties.

While few secondary trades have occurred to date, the need for secondary trading may grow over the next few years as more capacity reaches the end of its life and the proportion of new build capacity, securing agreements prior to being built increases, given that generation assets generally take longer to build and could be subject to project or planning delays.

More information can be found here