UK backup capacity auction price less than predicted

The UK secured backup electricity capacity for 2020/21 within a £20 to £25 per kilowatt (k Westminster London W)/year range, according to National Grid data but it may not be enough to stimulate a new wave of gas-fired power plants.

Contracts for around 52 GW of electricity were awarded but the range was below many analysts' expectations, who forecast the price would be significantly higher than previous auctions, since it sought to procure around 5 GW more capacity.

Analysts predicted £35-45 prior to the result so the eventual price is less than what would be expected to stimulate development of gas-fired power.

The capacity market auction endeavours to prevent future power shortages as coal plants close and low power prices dissuade investors from building new ones. Power plant owners are paid to make available back-up electricity at short notice.

"If new CCGT (combined-cycle gas turbine) plants have been successful, (and able to accept a lower figure) then it would indicate they expect higher profits in the wholesale market in the future," Phil Grant, partner at consultancy firm Baringa Partners told Reuters.

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