Fierce competition in the first ever Capacity Market means that payouts to power companies under the subsidy scheme will be lower than expected, working out at around £11 per household, says the government.
Energy and Climate Change Secretary Ed Davey said: “This is fantastic news for bill-payers and businesses. We are guaranteeing security at the lowest cost for consumers. We’ve done this by ensuring that we get the best out of our existing power stations and unlocking new investment in flexible plant.”
Aimed at preventing power blackouts, the Capacity Market incentivises participating providers by paying them to keep power plants open and available.
The first stage of the process has been to estimate how much capacity will be needed in 2018/19, the first year the Capacity Market will run. Electricity providers have then bid into this capacity auction, promising if they win a contract that they will be available to provide electricity when needed. In return, they will receive a steady payment on top of the electricity that they sell.
Through the auction, the government has procured 49.26GW of capacity at a clearing price of £19.40kW. This will cost a total of £0.96 billion (in 2012 prices), which works out at around £11 for the average household. Nothing will be paid by consumers before 2018/19.
The majority of the capacity agreements provisionally awarded, by capacity, are to combined cycle gas turbine plants.