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T-4 Capacity Market clears at record high of £30.59/kW/year marking ‘watershed moment’

The T-4 Capacity Market clearing price for the 2025/26 period has beaten the previous record of £22.50/kW/yr by just over £8. Image: Getty.

The T-4 Capacity Market clearing price for the 2025/26 period has beaten the previous record of £22.50/kW/yr by just over £8. Image: Getty.

The T-4 Capacity Market auction has cleared at a record high of £30.59 /kW/year, due largely to the decommissioning of old assets and higher capacity needs.

This increased the total cost of contracts awarded for 2025/26 to £1.3 billion, up from £470 million for this winter for example.

In total 42,364MW of capacity cleared in the ninth round yesterday afternoon (22 February), from the following sources:

  • 27,632MW from gas
  • 6,966MW from interconnectors
  • 2,528MW from pumped storage
  • 1,093MW from battery storage
  • 988MW from demand side response
  • 990MW from nuclear
  • 842MW from hydro
  • 633MW from waste

This was just slightly below the 43.6GW target set by secretary of state for Business, Energy and Industrial Strategy Kwasi Kwarteng in January.

T-4 Capacity Market auction results. Image: EMR Delivery Body.
T-4 Capacity Market auction results. Image: EMR Delivery Body.

In particular, tighter capacity was caused by the shutter of coal and the shrinking of nuclear power plants. Just two nuclear units, Sizewell B1 and B2, won contracts, which are both on the younger end of the UK’s current nuclear fleet.

All but one of the country’s nuclear power stations will retire by March 2028, with EDF-owned Hinkley Point C, which is currently under construction, set to come online in June 2026.

A record amount of battery storage cleared at over 1GW, according to analysis from Aurora Energy Research. This is up by ~800MW from last year’s auction and split between 107 units, with more than 60% of this storage over two hours in duration.

This follows a significant increase in the capacity that prequalified for the delivery year 2025/26, with 8.3GW of battery storage registered – although after derating that dropped to around 2.3GW – according to data released by EnAppSys in November.

“Battery project winners are the biggest news in this auction, with many new-build battery projects having chosen the year with the highest ever clearing price for a T-4 auction to come online. This is a major boost in particular for those units that were able to secure long-term contracts,” said EnAppSys director Paul Verrill.

“Due to de-rating of storage capacity in the auction and in particular batteries in the market, they will see only around 30% of the CM payment price. The standout headline for batteries is the Intergen Gateway project at 320MW winning a contract. Zenobe, Sembcorp and Statera also brought forward 100MW capacity projects.”

Just one existing CCGT failed to secure a contract in yesterday’s T-4 auction, SSE’s 735MW Medway plant. It has failed to secure a contract now for four years in a row, said Aurora. But 800MW of new-build gas assets did secure a long-term contract, almost 600MW lower than in the last auction and all of these have contracts beyond 2035.

T-4 Capacity Market auction results by technology. Image: EnAppSys.
T-4 Capacity Market auction results by technology. Image: EnAppSys.

Chris Matson, partner at LCP said the capacity auction was a “watershed moment” with the clearing price smashing the previous record of £22.50/kW/yr, reflecting the “transition in the energy grid that we are seeing and where we get our power from.”

“Out of the UK’s six remaining nuclear plants, only one took part in the auction, with the remaining number likely to be decommissioned by 2025. By this date, the UK will also have no remaining coal power stations, which were not able to participate in the auction. This gap in capacity supply is being filled by new builds which require higher capacity prices, in particular battery storage which made up the majority of the new capacity awarded 15-year contracts yesterday (3.3GW, or 1.0GW derated).”

Matson added that the increased demand in coming years due to the electrification of sectors like transport and heating is also contributing to the increased clearing price within the capacity market, with peak demand for 2025/26 expected to be 1.8GW higher than the previous year.

The impact of high wholesale prices the UK is currently experiencing due to a global gas shortage has not directly caused the high clearing price, but has emphasised the need for secure capacity to ensure energy security throughout the country’s transition.

“Even with the higher clearing price in today’s auction, the costs of providing this security are dwarfed by the costs of the gas crisis that’s directly adding at least £500 to household bills from April and driving almost all of the 54% hike in home energy costs,” said Dr Simon Cran-McGreehin, head of analysis at the Energy and Climate Intelligence Unit.

“When these capacity contracts kick in, the UK will have an extra 6GW of offshore wind installed, giving homegrown, net zero power that’s free from international interference and that pays back in a gas crisis – in addition to today’s wind farms that are set to pay back at least £660 million during the current gas crisis.”

The T-4 auction follows the T-1 auction last week, which cleared at a record high price of £75/kW/y for the 2022/23 period in the first round after Kwarteng set a target of 5.36GW for the auction in January, which was over the prequalified capacity.

Current± is running a webinar on the impact of the energy crisis and the broader transition in the UK on the Capacity Market today (23 February 2022), speaking to EnAppSys’s Verrill about how capacity constraints have driven the high prices, whether it will protect consumers and what we can expect in the coming T-4 auction.

Register for Current± Briefings: What impact is the energy crisis having on the Capacity Market? at 3pm GMT, on 23 February 2022 here.

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