The capacity market auction, which begins today, aims to secure 45 gigawatts of electricity for the winter of 2019-20 by paying generators that promise to supply back-up power at short notice, reports The Times.
This year, the auction has been thrown open to the operators of four subsea power cables, pitting overseas generators against the operators of conventional power stations in the UK. It is the first time that foreign suppliers have been allowed to participate.
The interconnectors across the English Channel and the Irish Sea already play an important role in Britain’s electricity market, feeding up to four gigawatts of electricity into the UK grid, representing about 7 per cent of national peak electricity demand. With ageing British power plants being retired from service, there are plans to lay seven more such subsea cables, including from Denmark and Iceland, with the potential to deliver more than seven gigawatts of additional supply.
However, the decision by the energy department to include interconnectors in the auction was said yesterday to be deeply unpopular among operators of both existing British power stations and the developers of new ones, which claim that the subsea links enjoy an unfair competitive advantage.
“The economics of operating a power cable are completely different to a power station,” Peter Atherton, energy analyst at Jefferies said, emphasising that it was much cheaper to lay a cable than to build a new power generating plant in the UK.
Moreover, he said, the operators of French and Dutch power stations were exempt from high UK carbon taxes, putting the electricity they supplied to Britain at a big competitive advantage — potentially at the cost of domestic jobs and investment.
Others have accused National Grid, the operator of the country’s high-voltage transmission network, of a conflict of interest. It is responsible for running the capacity auction, but at the same time it owns stakes in the Interconnexion France-Angleterre link to France and the BritNed link to the Netherlands. National Grid is involved, too, in plans to build new cables to Belgium and Norway.
A spokeswoman for National Grid dismissed those concerns, saying that the company was not bidding in the auction directly and that bids were being handled by separate corporate entities in which it holds a stake.
Under the capacity market system, introduced by the government last year to shore up investment in the industry, the owners of the plants or subsea cables will be paid an annual retainer to provide electricity at short notice.
The idea is to encourage the investment required to replace older power stations and to provide back-up for intermittent and less flexible sources of electricity, such as wind and solar energy. The system has become increasingly important as ageing coal and nuclear stations are retired. Up to a fifth of Britain’s electricity supplies could be imported by 2022, according to research published in September.
Last year’s auction, which cost the government about £1 billion, failed to deliver much in the way of new generating capacity because the auction price was considered too low to provide an incentive for the construction of new power stations.
Although the government has said that interconnectors will be subject to the same rules and penalties as domestic generators of power, the auction system has been criticised for failing to discriminate between different types of generation. Under European rules, the auction is not allowed to draw distinctions between different fuel types, giving rise to concerns that it may lead to the construction of polluting diesel generators, which are cheap to build but produce high levels of emissions.
Last month, Amber Rudd, the energy secretary, indicated that the capacity auction system needed to deliver the right results for Britain — in the form of new gas-fired power stations.
