EON, EDF Plants Intend to Bid in U.K. Power-Capacity Auction

Power generators in the U.K. from EON SE to Electricite de France SA will compete for payments from the nation’s grid operator to provide electricity in the winter of 2018-19.

Plants with about 62.5 gigawatts of capacity, enough to cover 96 percent of peak demand, plan to participate in the Dec. 16 auction, London-based National Grid Plc said Oct. 3. They will compete for 50.8 gigawatts of contracts.

The auction is intended to encourage power stations to stay connected to the nation’s grid and spur new construction. The amount of spare capacity in Britain is set to shrink below 2 percent as pollution rules force some coal plants to shut and previously unprofitable gas generators are mothballed, according to the nation’s energy regulator. The government wants 20 gigawatts of new gas plants built by 2030.

This was “the first crucial piece of supply-side information regarding the capacity-market auctions,” Deepa Venkateswaran, a London-based senior analyst at Sanford C. Bernstein Ltd., said in an e-mailed note today. It “provides a good idea of which power plants intend to participate in the auction.”

Venkateswaran expects the auction clearing price, the level at which bids match the targeted volume, to be 38 pounds ($60) a kilowatt. The auction will open at 75 pounds a kilowatt and descend in 5-pound increments, with all successful bidders receiving the clearing price, National Grid said.

Documents Needed

New power plants with 9 gigawatts of capacity plan to participate in the auction, according to the network operator. Stations with 5 gigawatts of capacity failed to meet the necessary criteria and must submit more documentation within five days, it said.

EON intends to enter 6 gigawatts of stations into the auction, compared with 8 gigawatts for RWE AG and 11 gigawatts for EDF. Centrica Plc plans to enter 4.8 gigawatts, all of its plants, meaning it will be unable to sell any of them until after the auction, Bernstein said. The company said May 8 it was considering selling its three largest plants amid shrinking revenues.

There were 8 gigawatts of plants that decided to opt out of the capacity auction. While ScottishPower Ltd.’s 2.4-gigawatt Longannet coal-fed plant won’t receive payments to stay open, there’s no intention to shut it down, the company said Oct. 3.

“Given current market conditions, particularly disproportionate transmission charging penalties applicable to the station, the company cannot justify entering the plant into a process which will not come into force for four years and will then only offer 12 months of certainty,” ScottishPower said in a statement.

The mechanism is a step toward “delivering a secure and flexible generation fleet in order to keep the lights on,” InterGen U.K. Ltd., which plans to enter three existing gas-fed plants and two new-build projects into the auction, said in an e-mailed statement today.

A second, year-ahead auction will take place in 2017, National Grid said.

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