Provisional contracts of over 312MW of demand side response (DSR) capacity have been awarded in the latest transitional capacity market auction, the last to be dedicated solely to the demand turn down.
The successful bidders secured a clearing price of £45/kw per year, much higher than the £25/kW expected by successful auction participant SmartestEnergy, which won 40MW while two of its capacity market units (CMUs) exited above the clearing price.
A total of 32 CMUs were awarded to ten bidders, with DSR specialist EnerNOC UK winning 100MW of DSR contracts, de-rated to 86.88MW. Kiwi Power continued its successful run in capacity market auctions by securing 60MW, while E.On, EDF, Limejump, EnergyPool and UK Power Reserve also won DSR contracts.
Speaking to Clean Energy News after the auction, EnerNOC’s senior director of regulatory affairs Paul Troughton explained that the higher clearing price was a symptom of some participants failing to fully prepare their bids for the auction.
“We were surprised at how high [the clearing price] was. Looking at the steps that made the price go up, some participants didn’t clear their capacity but a lot more before the auction even started reducing the size they were bidding for or pulled out altogether,” he said.
“What was unusual about this auction is that it was the only one we’ve had where only demand turn down is allowed, you can’t use back-up generators, so the lesson there is that many of the aggregators [were] not confident they [would be] able to find flexibility purely from customer load and pulled back a bit.”
In a statement released after the auction, SmartestEnergy commented: “We had positive price expectations going into the auction but this is far higher than predicted. We believe this is because there was significant drop out of capacity from pre-qualified levels against an unadjusted target.
“It does reflect the level of prices needed to encourage DSR from many sources.”
In contrast, end users Tata Steel UK and BOC were able to confidently calculate the demand response they are able to provide and win contracts accordingly, securing 33MW and 19MW respectively.
The auction was intended to secure 300MW of DSR capacity but awarded contracts to 312.171, suggesting the provisional contracts may change before the final confirmation in the week beginning 3 April.
As the latest TA auction is the last to be solely dedicated to DSR, the high clearing price – although positive for contract winners – will cast doubts over the ability of the technology class to compete against others in future, more open auctions.
SmartestEnergy added: “With such a high price now set from the TA auction, we do have concerns that DSR will struggle to compete alongside existing and peaking generators in the next auction and are concerned that a significant drop in price may mean we lose momentum.”