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Significant growth in UK capacity market auctions heralds energy storage potential.
Capacity market auctions are a mechanism in the electricity market designed to ensure that the power system has sufficient power supply during future peak demand periods.
Through such auctions, power system operators (such as the UK's National Grid ESO) purchase generation capacity or storage capacity for a specific future year in advance to ensure that power demand can be met during periods of high demand.
Demand forecasts: Grid operators determine how much additional generation or storage capacity will be needed over the next few years based on forecasts of future electricity demand.
Auction process: Operators will organize auctions, and power generation companies and energy storage project developers submit bids to provide the power generation or energy storage capacity they can provide in a specified year.
Contract award: The winning bidder signs a contract with the grid operator, committing to provide a certain amount of power generation or energy storage capacity for a certain period of time in the future. In return, these companies will receive capacity payments, even if their facilities are not actually used to generate or store energy during the auction contract period.
In the UK, capacity market auctions are typically divided into "T-4" and "T-1" auctions:
T-4 Auction: An auction conducted four years in advance to procure capacity needed for a year four years in the future. Such auctions ensure long-term power supply capacity, allowing power companies and energy storage project developers ample time to build new generation or energy storage facilities.
T-1 auction: An auction conducted one year in advance to adjust and supplement demand not covered by the T-4 auction to ensure power supply for the next year.
In the recent T-1 auction, battery storage projects were awarded 627MW of contracts, which is a significant increase and shows the importance and popularity of energy storage in the electricity market. In this auction, companies such as Harmony Energy and Gresham House were awarded contracts for approximately 150MW and nearly 100MW respectively.
This mechanism not only ensures the reliability of the power system, but also provides a stable source of income for energy storage and power generation projects, encouraging more investment and development.
