T-4 Capacity Market (CM) auctions have traditionally been a potential signal for new-build generation with their longer-term procurement structure. However, research from Cornwall Insight on the T-4 CM auctions has seen an irregular new build development pattern emerge.
In the seven T-4 auctions held since the CM’s inception, 12.6GW of new build capacity has been awarded in these auctions, with new-build’s share of a successful auctions’ capacity ranging between 0.7% and 6.5%. In contrast, successful existing generation in individual auctions range between 30.5GW and 45.1GW, representing 74.6% to 90.6% of total capacity.
Lee Drummee, Analyst at Cornwall Insight, said:
“The amount of new-build capacity awarded agreements broadly follows the price trend, with higher-priced auctions procuring more new-build capacity. These new build sites likely need higher values in the CM to recover their development and construction costs.
“Looking at particular auctions, the T-4 auction for delivery in 2020-21 saw the highest Clearing Price and, in turn, procured the highest amount of new-build capacity both in GW (3.4GW) and share of total successful capacity (6.5%). This auction also had the highest amount of overall capacity awarded at 52.4GW.
“The latest T-4 auction, for delivery in 2024-25, cleared at a price of £18/kW (in line with our forecast assumptions) and showed a different trend. Despite the potentially large gap between the procurement target and the existing generation, only 1.7GW of new-build generation were awarded agreements, representing 4.3% of the total awarded capacity.
“While this still represents an uplift on recent T-4 prices, it is worth noting that most “spare” capacity was filled by interconnection.
“Going forwards, the dominance of existing generation and interconnection may change, with several older Combined Cycle Gas Turbine Plant (CCGT) and nuclear plants expected to retire in the coming years. Future CM auctions should therefore provide an opportunity for greater volumes of new generating capacity to come online.
“The capacity market has historically been dominated by existing capacity, and the large pipeline of new build assets means future competition will be intense.”
About the Cornwall Insight Group
Cornwall Insight is the pre-eminent provider of research, analysis, consulting and training to businesses and stakeholders engaged in the Australian, Great British and Irish energy markets. To support our customers, we leverage a powerful combination of analytical capability, a detailed appreciation of regulation codes and policy frameworks, and a practical understanding of how markets function.
