Gas power loses out in National Grid energy auction

The UK’s proposed pipeline of new gas power stations is under threat after National Grid failed to award any large scale gas power stations subsidies.

The government has plans for another “dash for gas” to help meet the UK’s energy needs, with former chancellor George Osborne unveiling a Gas Generation Strategy to build up to 40 gas-fired power plants prior to being jettisoned from the government.

But the plans were dealt another blow last week as only two small-scale gas projects won contracts for subsidies for backup capacity on the UK’s energy network.

Around 52GW of capacity was purchased by energy companies through government subsidies, in a process that was overseen by National Grid.

Analysts said subsidies of around £35-45 per kilowatt would be needed to attract developers to build gas-fired plants, but the auction cleared at a lower cost, at £22.50 per kilowatt.

Dr Jonathan Marshall, an energy analyst at think-tank the Energy and Climate Intelligence Unit, said the price was too low to encourage developers to build more than one medium-sized gas power plant and called for a change to the way the capacity market currently works.

He said: “The perversity of running a technology-neutral capacity market is shown by the fact it has not incentivised a slew of new large gas plants while it is rewarding old coal plants for staying open until at least 2020.

“All of this indicates that if ministers really want to incentivise new gas build, they may need something different from the capacity market in its current form.”

Analysts at Barclays bank said they believed the auction would “largely be viewed as a disappointment” by the government in terms of “securing the significant levels of new gas generation capacity they hoped for in order to ensure security of supply.”

The big winner of the auction was battery storage, which won subsidies in the auction for the first time.

Storage plants with a combined capacity of 500MW – developed by the likes of EDF and Centrica as well as smaller developers – won subsidies.

Gaining increasing recognition in the sustainability and renewable energy sectors, battery storage plants keep excess electricity when a surplus is generated and release when it’s needed.

The plants, called ‘batteries’, are considered crucial to help balance supply and demand in the energy system.