An auction to ensure the UK has sufficient back-up power is poised to attract record prices, which could bolster the nation’s reliance on natural gas just as it’s trying to decarbonize.
Britain’s grid operator on Feb. 27 is set to begin its auction to procure generating capacity for delivery in 2027-28. Clearing prices — the amount that producers require to be available — could be as high as £68 per kilowatt, according to commodity research firm ICIS.
The supply balance forecast for 2027-2028 looks “especially tight,” analyst Robert Jackson-Stroud said by email. “There will be a need to secure gas peaking plants for sure.”
The auction guarantees revenue for existing and new-build UK power plants, with the aim of ensuring there’s enough reliable supply on hand to meet demand even when the wind isn’t blowing or the sun isn’t shining. The government sets a price cap — in this case £75 per kilowatt per year — and suppliers bid their capacity and the required price.
While batteries and demand-response units are expected to clear in this auction, so are facilities that run on gas, a fossil fuel. Meanwhile, Britain is trying to achieve net-zero emissions by 2050.
The UK Department for Energy Security and Net Zero last month raised the target capacity for the auction. That prompted BloombergNEF to increase its central-scenario estimate for the clearing price to £66.25 per kilowatt, 26% higher than its previous forecast.
A high clearing price could mean a contract for a new gas-fired plant in northeast England — which would require about £68 per kilowatt, BNEF said. Last year’s auction, held when Europe was still reeling from its energy crisis, yielded a record clearing price of £63 per kilowatt.
Higher prices mean larger up-front costs that eventually trickle down to consumers. But they could also help normalize energy prices in the future. The auction is designed to pay plants to be available so operators don’t have to rely solely on profits made during price spikes.