THE ENERGY INDUSTRY TIMES - JANUARY 2017 Europe News 7 New build CCGT loses out in latest GB auction The latest GB capacity market auction has raised questions as to whether it is the right policy intervention tool to secure new capacity. Siân Crampsie The results of Great Britain’s latest capacity market auction have led to questions over whether the mechanism will fuel the construction of new generating capacity. The December auction closed at £22.5/kW, with over 52 GW of capacity awarded 1-, 12- or 15-year capacity market contracts for delivery starting in 2020/21. The clearing price will not be adequate to incentivise the construction of new large-scale CCGT plant, according to analysts. There have also been questions over the role that energy storage units such as batteries can play in the capacity market, and the continued trend towards the construction of small, reciprocating engine-based ‘car park’ power plants. “At £22.50/kW the market continues to see value in these smaller generation projects and this creates challenges for large new build CCGT plants whose value is weighted more towards trading revenues,” said Rob Lalor, Senior Analyst at EnAppSys. “Some developers have, however, managed to get round this by developing on existing sites, and presumably achieving significant cost savings. “This auction style where numerous projects are brought to market only to fail to progress as a result of a single auction will always drive the lowest possible prices whilst developers are still willing to participate in volume.” EnAppSys said that it had been anticipated that this round would bring higher prices than previous auctions with BEIS and Ofgem introducing a number of changes to address perceived market distortions, whilst also procuring more capacity. However, of the 52 GW of capacity awarded, almost 85 per cent is for existing generating units. Storage units were also successful in the auction, with over 3.2 GW of capacity awarded, including 500 MW of new-build battery projects. Over 1.4 GW of demand side response capacity was also awarded, an eight-fold increase since the first capacity market auction in 2014. “This auction saw large scale battery procurement for the first time and highlights the adaption of the market towards changing conditions evolving towards a green power system, with peakers and batteries backing up renewables, whilst incumbent CCGTs will continue to carry the main market load,” EnAppSys said in a research note. Prospect union said that the auction “has effectively deferred resolving where the bulk of the UK’s future electricity will come from”. The union’s Mike Macdonald said: “The latest auction has secured a host of small-scale generation, but we are no nearer to solving the problem of where the bulk of the UK’s electricity will come from after 2025 as existing nuclear and coal stations close. “The eventual price range of £22.50/ kW for 2020-21 is far below the £35- £45/kW needed to stimulate development of gas-fired power.” Centrica said that its success in the capacity market auction would enable it to build a 49 MW battery storage facility, two 50 MW distributed generation gas-fired power plants, and a 370 MW combined cycle gas turbine plant. The CCGT will be located at the firm’s Kings Lynn site and will use some of the existing infrastructure of the mothballed unit there. InterGen also won a 15-year contract for its proposed Spalding gas unit, an expansion project that will add around 300 MW of open cycle capacity to an existing unit. Some 10 GW of new CCGT capacity withdrew from the auction before clearing. Plutus PowerGen won contracts for three 20 MW new build sites, but environmental groups said they were pleased that fewer small-scale diesel plants had won contracts compared with the last auction. “This… auction has illustrated the rapidly changing nature of the GB power market,” KPMG said in a research note. It added: “In the future, we will be reliant on a much wider range of technologies, including storage, DSR and interconnection to keep the lights on, alongside existing largescale power generation. “Only time will tell if this more diverse and, as yet, unproven set of technologies proves to be reliable or not – and what the longer term role of new baseload plant, like a CCGT, will be – and thus the policy interventions needed to secure it.” Continuous cost reduction efforts in the offshore wind sector will enable the Dutch government to hold a subsidy free tender in 2026, it has said. The government revealed the target as part of its Energy Agenda, a document outlining the country’s trajectory to near-zero carbon emissions by 2050, published by the Ministry of Economic Affairs in December. The country’s medium-term goal calls for 14 per cent of total energy consumption to be from sustainable sources by 2020, rising to 16 per cent by 2023. By 2050, the Netherlands aims to be almost climate neutral. Offshore wind energy will play a key role in these plans; the country has set a target of 4.5 GW of installed capacity by 2023. The government’s longterm commitment to offshore wind and its new offshore wind tendering system have been central to recent cost reduction achievements, according to WindEurope. Last month a consortium of Shell, Van Oord, Eneco and Mitsubishi/DGE won the concession to build the Borssele 3&4 offshore wind farm (740 MW). The winning bid came in at €54.5/MWh excluding the cost of grid connection, 25 per cent lower than that for Borssele 1&2 and II (€72.7/MWh) awarded to Dong Energy in July. “This is yet another indication of the accelerated trend towards cost reduction in offshore wind,” said WindEurope’s Giles Dickson. “The winning bid reflects the industrialisation of the offshore wind supply chain. And it highlights the confidence of the industry in the Dutch offshore wind programme. “The Dutch government gives the industry visibility on volumes to be tendered several years in advance. They minimise administrative burdens and ensure the grid connection. “WindEurope welcomes the government’s recently announced intention to tender out a further 1 GW offshore wind capacity per year from 2023. The Netherlands are a model for other Member States who want to capitalise on the development of a competitive, clean and job creating wind energy sector.” The Dutch government said in December that the Borssele 3&4 wind farm will be built and operated with a subsidy of just €0.3 billion, significantly less than the €5 billion originally anticipated. It also believes that with the current energy price outlook, Borssele 3&4 can be operated without subsidy after 7.5 years. Earlier in December, Dutch Minister of Economic Affairs, Hank Kemp, said that the government had allocated €12 billion for renewable energy projects in 2017. In a letter to parliament, Kemp announced plans to spend €12 billion on subsidies for renewable energy projects in 2017, including tidal energy projects, through two tendering processes set for spring and autumn next year as part of the SDE+ scheme. n Germany’s Federal Network Agency (Bundesnetzagentur), which regulates the connection of wind farms in the North and Baltic Seas to the German transmission network, has confirmed a plan for offshore grid development by 2025. The plan will provide a reliable basis for future development of the offshore wind sector as well as a smooth transition towards competitive tendering of new projects. n Energy Agenda sets long term goals n €12 billion budget for renewables in 2017 Commission clears Belgian offshore scheme The European Commission has given the all-clear to Belgium’s plans to provide financial support for offshore renewable energy schemes. The Commission said in December that the support scheme, financed by a surcharge paid by end consumers, meets EU state aid rules. Under the proposed scheme, operators will receive certificates for offshore energy produced from renewable energy sources from the federal energy regulator (CREG). The operators can then sell these certificates to the transmission system operator Elia at a premium on top of the price they receive for electricity sold on the market. To avoid discrimination against foreign renewable energy producers resulting from the financing mechanism, Belgium has committed to partially opening up the scheme from January 1, 2017, to foreign producers of electricity from renewable sources. In December 2016 Norther NV, developer of the 370 Norther offshore wind farm in the Belgian North Sea, said that it had taken the final investment decision for the project. Norther – a joint venture between Eneco, Elicio and Mitsubishi – also announced MHI Vestas as the turbine supplier for the project, and Van Oord as the balance of plant contractor. The Norther wind farm will be Belgium’s largest when it is commissioned in 2019. Construction will be supported with a €438 million loan from the European Investment Bank. Dutch look to subsidy-free offshore wind
Energy Industry Times January 2017
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