Analysis

UK coal plants could get up to £2.1bn in capacity market subsidies

Jimmy Aldridge, Christine Ottery
License: All rights reserved. Credit: Greenpeace

Up to £2.1bn of bill payers’ money could be spent on subsidising coal plants in the UK this year through the capacity market, according to an analysis from Sandbag and Greenpeace.

Data released by the National Grid late on Friday shows 13.7GW of existing coal plants have qualified to bid in the capacity market - meaning they will get paid to contribute capacity to prevent the lights going out.  

If all of the 8GW of coal that opted for three-year contracts, and 5.7GW that have opted to bid for a one-year contract get the maximum of £75 per kw per year that adds up to £2.1bn worth of contracts - but the coal plants that have opted for a one-year round can bid again the following year.

See also:

Coal plants weren’t allowed to opt for the longer 15-year contracts after DECC closed a loophole earlier this summer.

The auction works by the plants trying to secure the highest payment until a capacity of 50.8GW is met. In return they must be online in 2018 and able to provide power when the grid needs it. The results of the auction in December this year will be known in January 2015.

The Committee on Climate Change have recommended that by 2030 the entire power sector needs to be emitting between 17 and 34 million tonnes of CO2. An average 2GW power station emits 10 million tonnes annually so it is not difficult to see that 13.7GW of coal on the system is going to be an issue when it comes to meeting our carbon targets.

Among the eight coal plants that could be subsidised are: Eggborough; EDF’s West Burton and Cottam; E.On’s Ratcliffe; Drax; SSE’s Fiddlers Ferry and Ferrybridge; and GDF Suez's Rugely.

Eggborough, West Burton, Cottam, and Ratcliffe have opted to bid for three-year contracts. To be eligible for these ‘refurbishment’ contracts a generator must spend over £125/kw of upgrading their plant. This suggests that this 8GW of capacity has decided to be online for a long while yet – they would not invest in upgrading their plant if they didn’t see a long term future - which also presents a significant threat to meeting carbon targets.

Aberthaw - which the UK government is lobbying the European Commission to keep open despite its high nitrogen oxide levels - applied for a one-year contract and was originally turned down on a ‘technicality’ - but appealed and was included into the capacity market auction. This could mean 1.4GW of coal in the capacity market.

The analysis also shows:

  • EDF decided to enter all of their 9.7GW of old nuclear stations into the market for 3-year refurbishment contracts. This means that these power stations could secure up to £2.1bn in this first auction.
  • 7.5GW of new gas power stations are eligible
  • 0.7GW of demand-side response is eligible
  • 1.6GW of new small generators are eligible, thought to be mostly diesel generators.

It also found that 70% of the eligible power stations are owned by the Big Six, which are under investigation over alleged competition issues. Though the original intention of the capacity market was to incentivise new capacity, it accounts for just 14% of the total capacity.

Meanwhile demand-side measures are under-represented. The Energy and Climate Change Committee found recently that demand side options offer huge potential and if they were given greater focus in the Capacity Market it could save consumers up to £359m per year.

Demand-side response includes smart technologies, storage, and small-scale generation. It is a cheap way of responding to fluctuations in electricity demand and is expected to become an important part of the electricity systems of the future - but only 0.7GW, or 1%, has qualified for this auction.

Other capacity markets, for example the PJM market in the US, have far higher penetrations of demand-side response which means there is less of a requirement for additional carbon-intensive generation capacity.

**The figures in the analysis are not derated.

** This article has been corrected. The headline figure could amount to £2.1bn not £2.2bn as orignally stated,

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