Energy Transition Update: T-4 Capacity Market Bids at a Historical High
The National Infrastructure Commission (NIC) has been given the green light to undertake a comprehensive review of the electricity distribution network, as the UK continues its transition towards a net zero electricity system by 2035. This review, announced in the Autumn Statement in November 2023, will focus on ensuring local networks facilitate this transition, while also examining how regulatory frameworks must evolve to accommodate the scale of investment required.
In a significant development, the T-4 Capacity Market auction for the 2027/28 delivery year has secured 42.8GW in capacity agreements, providing market certainty for capacity providers and encouraging investment in generation assets needed in the medium term, including low-carbon technologies.
The clearing price for the T-4 auction is £65/kW, double last year's price. This reflects the increasing cost of securing reliable capacity, as the UK moves away from fossil fuels towards renewable and low-carbon technologies. Nearly 1GW of new-build battery assets were successful in the auction, with pumped storage securing the most capacity of low-carbon technologies, securing 9GW or 4% of the auction.
The review, led by Commissioner Nick Winser, will also look at additional factors, both on and off network, which can contribute to the swift delivery of the required capacity at the lowest cost. This includes considering the interaction of the distribution network with transmission network capacity and examining the role of various stakeholders, including the Future System Operator and Distribution Network Operators in the process of connecting new generation.
In a boost for the UK's hydrogen economy, the government has awarded £21 million in funding to seven hydrogen production projects across England, Scotland, and Wales. These projects are expected to increase the UK's hydrogen production capacity by 800MW, supporting over 12,000 jobs and up to £11bn in private investment by 2030.
However, the UK's future growth in the net zero economy may be challenged as other global players, such as the US and the EU, compete to attract and build their own net zero economies. Analysis by CBI Economics cautions that the UK must maintain its strength in the net zero economy through future investment and policy stability.
The full report from the NIC is expected to be published in early 2025. Nick Winser, Commissioner for the NIC, previously published an independent report on transmission network deployment in August of last year. The review will consider changes in the use of the distribution network as new sources of demand, storage, and generation are deployed, and whether the UK's planning system requires changes to support more efficient delivery of distribution infrastructure.
As the UK continues its transition towards a net zero electricity system, the T-4 Capacity Market auctions serve as a pivotal mechanism to secure reliable capacity in advance, balancing remaining fossil fuels with growing renewables and nuclear capacity. Recent changes aim to accelerate grid connections and new capacity deployment, which together contribute to the UK's energy transition towards net zero while maintaining system security.
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