But blow for government’s ‘dash for gas’ plans as large plants fail to win subsidies to generate backup power

A series of new battery power-storage plants and two small new gas power stations will be built in the UK following the award of subsidies designed to bolster energy supply and head off the threat of shortages.

But government hopes of an ambitious “dash for gas” were dealt another blow after this week’s auction of subsidies to build backup capacity for Britain’s energy network. No new gas power station of a significant scale won a subsidy contract in the bidding process, where companies and technologies competed to provide backup power for the lowest price during the winter of 2020-21.

However, the British Gas owner, Centrica, won support for a small-scale gas power plant to be built by 2019 at King’s Lynn in Norfolk. An extension will also be added to US company InterGen’s gas plant in Spalding, Lincolnshire.

Analysts at Barclays banking group said: “Overall we believe the auction will largely be viewed as a disappointment by the UK government in terms of securing the significant levels of new gas generation capacity they hoped for in order to ensure security of supply.”

The bank said that to encourage big new gas plants, capacity in the auction needed to be sold at £35-£45 per kilowatt, rather than the £22.50 reached. The auction saw 52GW of capacity purchased through government subsidies in a process overseen by National Grid, the UK power system operator.

Flexitricity, a business that works with companies which commit to cutting power demand when supply is tight, said the auction results showed the government needed to rethink its push for new gas. “After three years, the capacity market has still failed to deliver a single new-build CCGT [gas plant],” said the company’s founder, Dr Alastair Martin.

Jonathan Marshall, an analyst at the ECIU thinktank, said: “If ministers really want to incentivise new gas build, they may need something different from the capacity market in its current form.”

Batteries took a much larger share than in previous years, with about 500MW awarded to new storage plants being built by EDF, Centrica and smaller companies. Such facilities can provide electricity in seconds to keep the lights from going out, compared with gas plants such as the new one at King’s Lynn, which would take more than 40 minutes to supply electricity when called upon if, for instance, it is not windy enough to power windfarms.

“Smaller embedded generators, including batteries, were the big winners in this auction,” said Tom Edwards, an analyst at Cornwall Energy.

Green groups welcomed the news that government auction had led to diesel generators, which have been accused of causing noise and air pollution, winning a smaller share than in previous years.

But they were disappointed that coal still fared well – winning a tenth of backup capacity – despite the government’s promises to phase out the polluting fuel by 2025. Existing large coal, gas and nuclear power stations will provide 85% of backup power in 2020-21.

Rebecca Williams, an energy expert at conservation campaign group WWF, said: “I do think there is a real danger of coal continuing to linger round on the system, crowding out investment in the more flexible generation our system needs.” She urged the government to restrict coal’s access to the capacity market in future, to avoid undercutting investment in other “more attractive” forms of flexible capacity.

ScottishPower, which had hoped to win contracts for new large gas power stations, said it was disappointed that coal had won so much capacity. “Diesel was the winner last year, and coal is the winner this year. Clearing 20 times more old coal than new gas signals a willingness to sweat these assets until the bitter end,” said Neil Clitheroe, the company’s global retail director.

This week’s auction, the third so far under the capacity market, will cost consumers £15 a household in 2020-21 as energy users shoulder the cost of the subsidies. The government said energy supply was being secured at a “low cost” to bill-payers.

Greg Clark, the business and energy secretary, said: “This is about more than just keeping the lights on. A modern, reliable and flexible electricity system powers the economy and Britain’s future success.”