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Capacity Market T-3 Results

Capacity Market T-3 Results

The auction delivered a record low clearing price of all T-3/T-4 auctions to date.

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Simon Virley - Partner and Head of Power and Utilities

Partner and UK Head of Energy & Natural Resources

KPMG in the UK

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The T-3 Capacity Market (CM) procured 45GW at a record low price (for T-3/T-4) of £6.44/kW translating into a gross cost of £290m for consumers.

The results of this auction have reiterated the level of over-capacity on the GB system in the early 2020s. This theme is likely to continue until coal, nuclear and old gas assets exit the market which is expected to take place through the mid/late 2020s.

If we see another sub-£10/kW clearing price in the T-4 auction, Department for Business, Energy and Industrial Strategy (BEIS) will continue to face difficult questions about the necessity of the CM and whether there is a requirement for capacity to ensure security of supply or potentially flexibility, resilience and system stability. The T-1 auction for delivery year 2020/21 takes place on Thursday and we can expect another low clearing price.

The medium-term challenge for BEIS will be whether the CM, in its current form, is aligned with our decarbonisation ambitions or whether more fundamental reform is required to reflect the growing prioritisation of delivering Net Zero by 2050.

The current consultation published on 3 Feb 2020 proposes numerous potential improvements, including establishing emission limit reporting and verification mechanism within the CM.

This could open the door for BEIS to introduce more ambitious emissions limits into the CM as they see fit which would be seen as a fundamental change to the existing mechanism.

Read our Capacity Market T-3 Report for further analysis.

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KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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