U.K. Power-Capacity Auction Seen by BNEF No Herald of Gas Plants

The U.K.’s first auction to provide power capacity is unlikely to herald a burst of construction of new gas-fed plants, as expected by the government, according to Bloomberg New Energy Finance.

The auction, scheduled for Dec. 9, is taking place under the so-called capacity mechanism. The plan will prolong the life of the nation’s coal-fired plants while doing little in its early years to encourage investment in new gas generation, BNEF said in a statement today.

The capacity mechanism is designed to ensure the U.K. has enough available power capacity to prevent blackouts during periods of high demand. The measure received state-aid approval from the European Commission, the European Union’s executive arm, on July 23.

“Their construction costs are sunk,” Monne Depraetere, an analyst at BNEF in London, said in the statement, referring to existing coal plants. “So they will be able to under-bid developers of gas-fired power stations that have yet to be built.”

The auction is for 53.3 gigawatts of capacity to be supplied in 2018-19. Existing plants with 56.2 gigawatts will submit bids, according to BNEF. A gigawatt can supply about 2 million European homes.

Still, any benefit for coal-fired production will be limited because tightening EU emissions rules will force 80 percent of plants fed with the fuel to shut by 2024, when new gas plants will become more viable, BNEF said.

To contact the reporter on this story: Rachel Morison in London at rmorison@bloomberg.net

To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Dan Weeks, Sharon Lindores

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