The Department for Business, Energy and Industrial Strategy (BEIS) has increased the target for the next T-1 Capacity Market auction from 0.4GW to 2.4GW following the latest guidance.
The target for the 2024/25 T-4 auction has also seen a boost, increasing by 0.5GW, with both of these revisions recommended by National Grid ESO and now confirmed in a letter to the ESO penned by energy minister Anne-Marie Trevelyan.
For the 2021/22 T-1 auction, the increase to 2.4GW is a significant jump on the target initially outlined in July and will account for what BEIS described as a “range of non-delivery uncertainties”.
The initial 0.4GW target was the lowest it could be while still enabling an auction, with BEIS having “an obligation to hold an auction” even when one isn't needed, according to the BEIS Panel of Technical Experts (PTE).
This low target followed National Grid ESO originally recommending 0GW, with the PTE at the time agreeing that based on the evidence, there wasn’t a need for a T-1 auction.
BEIS and National Grid ESO's decision to increase the auction targets has now been made in response to a document issued by the operator in January 2021, analysing the impact of COVID-19 on the 2020 Electricity Capacity Report recommendations. While the PTE said within this that the pandemic had not “materially changed” the recommendation, there may be “other new market events that BEIS may need to assess”.
The PTE went on to say that it has recommended a "fundamental reconsideration" of whether the methodology may be prone to creating repeated problems of negative T-1 requirements, and has made suggestions which are being advanced by BEIS and the ESO.
This follows the role of the T-1 auctions being called into question as clearing prices continue to plummet, with the previous T-1 auction - for 2020/21 - clearing at just £1.00/kWh. In response to this, Cornwall Insight's head of training, Ed Reed, said that with "such a low price, it raises the question of whether running these T-1 auctions for relatively low capacity is beneficial".
This came after a record low clearing price for a T-1 auction was recorded in the 2019/20 auction, which cleared at just £0.77/kWh.
The PTE went on to say that that while, like for the T-1 auction, there may be other market factors BEIS may need to assess, there is not being “sufficient evidence” that the COVID-19 effect on resource adequacy in four years time will be “material enough to adjust the existing T-4 procurement recommendation”.
BEIS, meanwhile, said it had upped the target for T-4 to 42.1GW to account for “small technical considerations”, with Trevelyan detailing how this is to be broken down into 40.1GW for the T-4 auction itself while 2GW are to be set aside for the future T-1 auction.
Whilst an increase on the initial target, this is still lower than the 43.7GW procured in the T-4 auction for 2023/24 and a further drop when compared to the target for 2021/22, which was set at 50GW.
Today's decision follows the impact of COVID-19 on the Capacity Market being examined by BEIS last year as well, with the department outlining in April 2020 that it was considering relaxing some of the rules and regulations.