Page 21 - Gi flipbook August 2018

at the current T-4 auction prices. But fact further proof of the issues with
this leaves us with the question of the current auction system?
why is there such a substantial price Interconnectors, like other ‘newer’
differential between existing forms of energy capacity are privy to a
generation capabilities, new forms of range of pricing advantages or
energy and large gas plants? In the ‘embedded benefits’, which are
recent T-4 auction, close to 86 per unavailable to gas plants, as a more
cent of awarded capacity was proven form of generation.
allocated to existing generational Interconnectors have access to the
systems. Will these ageing assets be Ofgem cap and floor regime, which
able to maintain the surety of supply provides the developer with a
as they continue along their lifecycle? guaranteed minimum price to subsidise
The current T-4 auction awards the cost of energy delivery, thereby
existing generational capabilities driving down the auction price.
some key advantages: initial capital Such benefits are not only not
expenditure will likely have fallen available to gas and other more
away, either wholly or partially, established forms of energy, but can
resulting in an ability to operate at also be punished by existing taxes and
much lower running costs and charges, such as the UK’s carbon tax.
therefore, provide energy at a lower The government has sought to review
price point. Take, for example, the the weighting criteria following the
Carrington Combined Cycle Gas success of energy generation forms
Turbine (CCGT) plant which opened privy to embedded benefits in recent
in 2016 for reported construction auctions, but the results of the most
costs of £710 million. This plant was recent T-4 auction demonstrate that
awarded around 822MW in the this has not been sufficiently addressed.
recent T-4 auction. At the time of
delivery under the recent T-4 auction THE QUESTION OF BREXIT
regime, the Carrington plant will have Additionally, the impact of Brexit and
provided electricity at higher prices the current political climate pose a
for several years, decreasing the serious risk if the UK becomes
impact that capital expenditure has increasingly reliant on interconnectors
on its cost base. and imports from Europe and Russia.
The failure to adequately address this The realities of Brexit are still
bid for fixed payments either one or issue in the T-4 auction process is unknown, however, the Beast from
four years ahead to reduce construction impacting on the construction of new the East in early March paints a
risk and offset capital expenditure
against guaranteed future income. In
practice, it has had mixed results. The auction system has failed to provide
Instead of promoting large-scale
generational capacity – traditionally support for gas plant construction,
viewed as the future anchor of the instead favouring the construction of
energy market with the impending
closure of ageing coal and nuclear less proven or more volatile systems
plants – the current auction system
has repeatedly promoted the
construction of smaller demand-side
projects or created pricing that is only build capacity in the UK. If prices remain worrying picture. The cold weather, in
viable for existing infrastructure. as low as those achieved in February conjunction with the closure of the
The auction system has failed to this year, we risk becoming dangerously Rough offshore gas storage facility
provide support for gas plant dependent on ageing infrastructure. and National Grid’s gas deficit warning,
construction, instead favouring the triggered an astronomical spike in the
construction of less proven or more INTERCONNECTORS – wholesale price for the immediate
volatile systems. The viability of A BENEFIT TOO FAR? delivery of gas to 350 pence per
large-scale generation plants under Similarly, many commentators classify therm, up from 63 pence per therm
the capacity market system has interconnectors as one of the big the previous week.
been impacted by several ‘winners’ of the recent T-4 auction. Is While this was, perhaps, an isolated
contributing factors. the success of interconnectors, which incident resulting from unique
connect the UK with European weather across the continent, it
A DANGEROUS DEPENDENCE supplied electricity through subsea highlights the volatility that exists in
ON AGEING INFRASTRUCTURE cables, a demonstration of a the wholesale gas market. It is
The latest auction has made it sustainable mechanism of providing currently unknown as to whether
abundantly clear that large-scale gas energy at low prices for the ultimate Brexit will result in the loss of
plants are not capable of competing benefit of consumers? Or are they in membership to the EU solidarity

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