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UTILITY WEEK | 18TH - 24TH DECEMBER 2015 | 25 Markets & Trading F or energy investors the result of the lat- est capacity market auction has proved no less frustrating for its predictability. The concerns were clear even before the first auction last year. Far from securing capacity for the end of the decade analysts cautioned, the auction would award huge sums of public money to a cheaper existing plant, the inclusion of which would produce a clearing price too low to make new invest- ment in gas-fired power viable. Government has already begun a review into whether the framework is fit for purpose. In the meantime the sec- ond auction has proved that the unin- tended consequences of the capacity market now threaten all three pillars of the electricity market reform trilemma: threatening secure investment in new capacity, and using almost £300m of cus- tomers' money to support dirty coal and diesel-fired generation. "The result is fairly predictable given last year's auction, and shows that the capacity market review can't come soon enough," says Utilitywise head of energy markets, Jon Ferris. "This result risks extending the capacity tightness into the early 2020s." The £1 billion reverse auction began in the morning of 8 December and cleared at the end of the third day at £18.00/kW/year. Although the government hoped for a com- petitive auction the final price is too low to bring forward fresh investment in new large- scale gas-fired capacity. As the auction price fell, five pro- posed new CCGT plans totalling 4GW were forced out by cheaper small-scale gas and diesel generating units and the UK's exist- ing generation and import capacity. Ana- lysts at environmental group Sandbag estimate that around £294 million will be paid out to existing coal and small-scale die- sel engines. "The capacity mechanism is having the perverse effect of slowing the moderni- sation and decarbonisation the UK elec- tricity system. The capacity mechanism has failed to attract any new efficient gas plant or interconnectors, and it is pay- ing coal to stay open longer than it would have otherwise," said Sandbag analyst Dave Jones. By the end of the auction, 95 per cent of the remaining capacity was made up of existing generating capacity and interconnectors. "The only new build CCGT that got through was one that was being built any- way," Cornwall Energy consultant Thomas Edwards tells Utility Week. "If the govern- ment's intention is to support large-scale gas, then on the basis of evidence it is clearly failing." Just 2.4GW of capacity is from new or refurbished generation and there is no new large-scale gas-fired generation. The only "new" units larger than 30MW to succeed were SSE's 63MW Ferrybridge multi-fuel plant, which already secured a one year contract for 2018/19 through last year's auction, and Carrington Power's 880MW CCGT which has completed con- struction, started commissioning and is due to begin commercial operations in June next year. The remaining new-build plant fell below 30MW in size and are understood to include a significant proportion of gas and diesel- fired generators, which critics argue under- mines the government's bid to decarbonise the energy sector. The government has already begun a consultation into the auction framework and said that in light of the first two years' results it will check that the framework "still commands the confidence" of the industry "to deliver world class energy security and investment in new capacity". The responses to the consultation are likely to be as predictable as the auction itself. CAPACITY MARKET AUCTION RESULTS Analysis Doubt over capacity auction This year's capacity market auction again awarded huge sums to cheaper existing plant at the expense of new gas generation, prompting a government review. Jillian Ambrose reports. Source: Sandbag.org.uk MW derated £m (in 2014/15 prices, based on MW derated) Contracted Not contracted Not qualified Cost of auction (2019-34) Existing Coal 4,425 3,071 - 80 Nuclear 7,575 0 - 136 Interconnector 1,862 0 - 34 Large gas 2,4704 1,633 - 445 Embedded diesel 220 180 - 4 Other (hydro, pump, OCGT) 5,176 220 - 93 New Interconnector 0 540 - 0 Large gas 810 4,604 - 15 Embedded diesel* 650 220 736 155 Embedded other* 512 361 635 138 Demand response 456 217 8 Total existing 43,961 5,104 0 791 Total new 2,354 5,942 1,370 316 Total 46,315 11,046 1,370 1,108 * On three-year contracts