Utility Week

UTILITY WEEK | 16TH - 22ND FEBRUARY 2018 | 15 Policy & Regulation argued instead that the carbon price sup- port should be applied to imports, a recom- mendation that was also backed by a recent report from University College London. However, the exporting of emissions is not the only concern. The Centre for Policy Stud- ies has warned a growing reliance on inter- connectors will leave Great Britain exposed to supply disruptions and price spikes led by developments in the rest of Europe. Although she concedes it is "quite dif- ficult" to measure the level of security of supply interconnectors can offer, Zhang says it may be worth reviewing their de- rating factors to ensure they are not being overcompensated. Prospect for CCGTs But without changes, will CCGTs continue to struggle in future auctions? Not necessar- ily, says Zhang: "People will be asking if the price will stay so low. We think that is not really the case. We think that every year's auction is different. You have different sets of uncertainties and you're looking at different levels of demand and supply." This year's auction was hugely oversub- scribed, with more than 74GW of capacity bidding for around 50GW of contracts. Cornwall's Edwards says CCGTs will only find success when there are substantial clo- sures of existing generation: "We didn't think that was going to happen this year and prob- ably won't next year either because we've got to wait for a large exit of capacity." First on the horizon is coal. The Ratcliffe and Drax units that secured agreements are all compliant with the Industrial Emissions Directive, and Edwards thinks they are likely to remain open through to 2025 – the year by which the government has pledged to phase out all unabated coal generation. Although Aberthaw, Cottam, Fiddler's Ferry and West Burton A all failed to secure agreements in the latest auction, they all also have capacity contracts for future years, several of them running through to 2020/21. Edwards says he sees "no reason" why they won't attempt to extend their lives further by bidding in future year-ahead (T-1) auctions. Aside from coal closures, he says the next "big pinch point" will come in the mid- 2020s, when exist- ing nuclear plants start to close. "That's when gas really should come into its own and be able to capture the market. "However," he warns, "if there's a bunch of new intercon- nectors sitting around, there's going to be no market for them to capture, and then it will be a price fight between them and smaller reciprocating engines who are just cheaper." Exodus of capacity The "big exodus" of capacity from the latest auction at around the £40/kW mark suggests this is the clearing price that most new-build CCGTs require to be economically viable. Edwards says they are not only likely to be undercut by other technologies, but also by refurbished gas plants. "The older gas fleet is also ageing, and they will also start coming to the end of their lives in the 2023 to 2025 period," he explains. "But they're prime sites. They've got transmission connections. They've got gas connections… King's Lynn proved it could refurbish at £22.50/kW and that's not anywhere near the price that a new-build is going to need." Aurora's Zhang argues some new-builds will be able to bid lower than Edwards suggests: "Our analy- sis shows that CCGTs can break even at around the high twenties – so £25/kW and above." She says some plants will face more favourable transmis- sion charges due to their location, while prices for CCGTs themselves are falling, with capex cost now coming in at under £600/kW. Whether this will be low enough to fend off the stiff competition from a growing list of rivals remains to be seen. CCGT develop- ers will now have their sights set on inter- connectors as they fight for their place in the future energy system. The 'big exodus' of capacity from the latest auction at around the £40/kW mark suggests this is the clearing price that most new‑build CCGTs require to be economically viable WINNING CAPACITY BY TECHNOLOGY SOURCE: NATIONAL GRID CAPACITY AUCTION WINNERS AND LOSERS, BY TECHNOLOGY. TOTAL BID: 74GW LOSING CAPACITY BY TECHNOLOGY CCGT CHP and autogeneration Coal and biomass DSR Hydro Nuc lear OCGT and reciprocating engine (other) OCGT and reciprocating engine (diesel) OCGT and reciprocating engine (gas) Oil-fired steam generators Storage Interconnectors 23.83GW 439CMUs (capacity market units) 50.41GW 23,022MW 11,196MW 40MW 7,661MW 1,039MW 614MW 172MW 2,091MW 949MW 44 87 25 109 26 16 25 8 59 34 6 4,644MW 3,016MW 1,207MW 7,926MW 706MW 444MW 1,561MW 2,675MW 4,558MW

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