Utility Week

20 | 31ST JANUARY - 6TH FEBRUARY 2020 | UTILITY WEEK Policy & Regulation Analysis H aving been suspended for much of 2019, the capacity market has now largely returned to normal service. The market was suspended last year following a legal ruling by the European Court of Justice that the European Commission did not conduct an in-depth investigation into aspects of compliance with state aid rules. The case was bought by Tempus Energy, which argued that demand-side response was being treated unfairly because it could not bid for agreements longer than a year. New-build generation can bid for 15-year agreements. Almost all of the deferred payments have now been made, allowing the Electricity Settlements Company to cancel a second round of mutualisation. Three auctions are scheduled for the first quarter of 2020 – the usual year-ahead (T-1) and four-year-ahead (T-4) auctions plus a replacement for the cancelled T-4 auction that was due to take place around the same time last year. They will be the first in which renewables – at least those without any other subsidies – will be able to bid, although it is unlikely to be particularly lucrative for them. The T-1 auction is only for 300MW of de-rated capacity, and the pre-qualification registers for the other two indicate they are likely to be very competitive. What's more, given their intermittency, renewables are subject to harsh de-rating factors, meaning they will be paid only a small fraction of the clearing price. For onshore wind it is around 8 per cent and for solar around 3 per cent. Eleven onshore wind farms with a com- bined nameplate capacity of 654MW have prequalified for the T-4 auction for delivery starting in 2023/24, but they have been de- rated to 49MW. If it cleared at the same price as the pre- vious T-4 auction – £8.40/kW – and they all won contracts, then the annual payments to these generators would total just £436,000. As the upcoming T-4 auction is more over- subscribed than the previous one, the clear- ing price is likely to be even lower. The end of coal The auctions will be of more consequence for coal generators. Following a spate of clo- sures in recent years, there are now just five coal-fired power stations still online and two of those – Fiddler's Ferry and Aberthaw B – are scheduled to close at the end of March. That leaves just West Burton A, Ratcliffe-on- Soar and the two remaining coal units at Drax. West Burton A has no contracts beyond the current delivery year and so is the obvi- ous candidate to go next. Failure to secure any agreements may herald its imminent closure, as was the case with Eggborough in 2018. Both Drax and Ratcliffe have secured agreements for the next few delivery years – the only exception being for one of the four units at Ratcliffe for 2022/23 – meaning they will be around for a while longer. However, the upcoming auctions will give the best indication yet as to when they are likely to close. With the government vowing to phase out all unabated coal generation by 2025, the following T-4 auction will be the last in which they are able to bid. Renewable developers will be far more interested in any announcements regarding the future of contracts for difference (CfD) auctions: who will be able to bid, how o›en will they be held and – with prices falling to subsidy-free levels in the last round – what caps will there be on the amount of capacity procured? Nuclear reactions On the present course, the closure of Britain's existing nuclear fleet is expected to lead to a shortfall in low-carbon generation towards the end of the decade – even more so following the shelving of the Moorside, Wylfa Newydd and Oldbury new-build projects. There have been repeated calls for the government to fill this gap by ramping up renewables, in particular by allowing onshore wind and solar to once again partic- ipate. The latest figures from Renewable UK show onshore wind installations have con- tinued to fall in the absence of support. From a record high of 2,683MW in 2017, installa- tions fell to 651MW the following year and to 629MW in 2019. Change on this front seems more likely than at any time during the past few years. In the run-up to the general election, Boris Johnson expressed enthusiastic support for the net zero goal, declaring that "we can do it" and decrying the sceptics who thought otherwise. "Remember it was only a few years ago when people were saying that solar power would never work in cloudy old Britain and that wind turbines would not pull the skin off a rice pudding," he said in a conference speech. "Well there are some days when wind and solar are delivering more than half our energy needs." As a point of interest, he didn't mention that the renewables sceptic he was quoting was actually himself, from 2013. Nevertheless, Johnson has made clear that his government will be less austere than May's and has proposed boosts in infrastruc- ture spending, particularly in the Midlands and the North – regions to which he owes his healthy majority in the House of Commons. He also has a well-documented penchant for vanity projects and big numbers, and in an apparent bidding war during the cam- paign pledged to raise the target for offshore wind to 40GW by 2030. We have Boris Bikes and Boris Buses in London. Might we see Boris Turbines being raised across the coun- try as the prime minister seeks to make net zero one of his flagship policies once Brexit is done? There is also the question of what support Generation: competing technologies mix it up Many companies are now shaping their business models around the co-location of multiple technologies, allowing them to share grid connections and minimise costs, says Tom Grimwood.

• Cover