SSE is set to earn a windfall from the gas-fired power plants it will ensure are available to help keep U.K. lights on next winter.
The utility could make as much as 172 million pounds ($233 million) in an auction that cleared at 75-70 pounds a kilowatt per year on Tuesday, according to calculations using National Grid data. SSE stands to be by far the biggest winner among the companies competing.
The capacity market — a mechanism designed to guarantee there’s enough energy available for the country — is paid for by consumers. In a sign of caution about security of supply, the government last month decided to increase the target capacity it wants to have available next winter.
The capacity target for next winter was raised after it became clear that some stations with a four-year contract were now unable to fulfill their obligations. SSE put forward gas units for the auction.
SSE controls 42% of the capacity bidding, it has a “very strong hand” in setting the price, BloombergNEF analyst Andreas Gandolfo said.
SSE declined to comment prior to the auction.
Britain is dealing with a confluence of energy-related issues, including aging power stations, soaring natural-gas prices and utilities that have gone bust. Consumers are facing ever-higher prices, with domestic energy bills set to jump 54% from April, putting more pressure on household budgets being stretched by rising inflation.
Power plants largely aren’t being replaced, partly due to a government push into renewables, particularly offshore wind. Capacity auction prices also haven’t been high enough to make it worthwhile building new stations. The stakes are high — when it’s not windy, the U.K. relies heavily on gas, the price of which has quadrupled in the past year.
SSE entered its brand new Keadby-2 gas-fired plant into the auction. The station is still in its testing period and will need to be commercial by Oct. 1 when the capacity contract starts. The company is also putting forward its Keadby-1 and Medway gas stations.
Also, Uniper entered its Ratcliffe coal-fed plant into the auction and is in line to get as much as 30 million pounds to keep it available. Conventional power stations can participate alongside producers of renewables, storage owners and operators on the demand side.
The year-ahead auction is a top-up to supplement the main auction held four years in advance, and cleared in the first round. The exact level at which the auction cleared will be published by 7 p.m. London time.
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