Coal-fired power generators were among the winners of contracts worth £378m to generate electricity next winter, highlighting the tension between government efforts to reduce carbon emissions and the need for energy security.
Gas-fired power stations secured the biggest share of contracts — almost 40 per cent — in the capacity auction held by National Grid, the UK electricity system operator, to ensure adequate supplies during the winter months when demand is highest.
Coal and biomass plants won a further fifth of the contracts, which guarantee power companies extra payments for generating electricity when supplies are tight. The auction results were announced late on Friday.
Critics have highlighted the apparent contradiction between government plans to phase out all coal-fired power from the UK by 2025 and the provision of top-up payments — often described as subsidies — that help keep coal plants open.
The government says the capacity market system is designed to ensure that coal power is phased out gradually so that Britain avoids the risk of blackouts while making its transition towards cleaner forms of energy.
Scores of large and small generating companies took part in the auction, which started on Monday, and involved companies bidding for contracts which require them to have generating capacity available when needed by National Grid.
The auction is designed to minimise costs for consumers because the value of the contracts falls with each round of bidding as companies compete for the subsidies.
This week’s auction closed at a lower-than-expected price of £6.95 per kilowatt — less than half the level analysts had expected — leading the government to argue the system was succeeding in ensuring adequate supplies at an affordable cost.
However, the low price — implying plentiful supply — raised questions over whether the auction was needed at all. “The capacity market will subsidise a lot of dirty fossil fuel power stations for what they were going to do anyway, increasing the profitability of pollution,” said Doug Parr, policy director at Greenpeace UK.
Jon Ferris, strategy director at Utilitywise, which manages energy supplies for businesses, said the main problem facing the UK power system was not shortage of capacity but rather an increase in volatility as growth in intermittent wind and solar generation makes supplies less predictable.
Last year was the first in which the UK generated more electricity from wind turbines than from burning coal. During windy periods last spring and summer, Britain had extended periods when all its coal power stations were idle. Yet, at cold and windless times this winter coal has been back up to 20 per cent of the energy mix.
“The auction system is like using a hammer to crack a nut,” said Mr Ferris. “We don’t have a capacity problem, we have a flexibility problem.”
National Grid runs two annual auctions; one to procure capacity for four years ahead and the other for the next winter. This twin-track approach is intended to create longer-term incentives for investment in new power stations while ensuring sufficient existing capacity remains in service to meet near-term demand.
The Department for Business, Energy and Industrial Strategy said the system meant the UK had guaranteed adequate supplies until at least 2021, with coal capacity due to fall by 30 per cent by the end of that period.
“Thanks to this auction, homes and businesses can have confidence in the availability of . . . electricity at the lowest possible cost,” said Jesse Norman, energy minister.
Mr Parr at Greenpeace said the government should be more aggressive in driving out fossil fuels. He highlighted a coal-fired power station at Aberthaw in Wales which was ruled by the European court of justice last year to be in breach of air pollution laws yet won contracts in this week’s auction that will help keep it open.
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