The UK's first ever power generation capacity auction, which gets under way next month, has been designed to guarantee security of supplies over the coming years.
However, developers of new gas powers stations including one North East company, fear it will fail to achieve its aim and prolong blackout fears for years to come.
Analysts say the auction favours existing capacity, and will temporarily prolong the lives of some of the country’s existing coal plants, despite being created to support the country’s green transition and hasten their demise.
But as this coal capacity has to eventually close to hit emissions regulations there are fears there will be no new capacity coming on-line to replace it.
As the UK turns to renewable sources for its electricity supply we need to have back up, or baseload capacity, for when the sun doesn’t shine and the wind does not blow.
The Electricity Market Reform programme was introduced in last year’s Energy Act last year and included a Capacity Market to secure baseload power.
The Department of Energy and Climate Change recently released details of those accepted to take part in next month’s Capacity Market auction.
While it looks like there will be sufficient capacity for the first few years with some 70GW of power coming forward, analysts say it currently favours existing plants.
The Government’s original plans envisaged a splurge of new gas-powered stations, which can be built relatively quickly – in three years - and emit half the CO2 levels of coal plants.
Stokesley-based Carlton Power was instrumental in developing the Carrington Power Station in Manchester, which is the only new independent gas power station to be built in the UK since 2008.
Carlton’s bid to develop a second new gas power plant – Trafford Power - on land next to Carrington station has been accepted into the Capacity Market.
But Mike Benson, business development director at Carlton Power highlighted its concerns.
He said: “The Capacity Market is heavily weighted in favour of existing plant. The Government does not seem to care about any new build, only about keeping the lights on.
“There is now a real risk of no new build as the process inherently favours existing plants which will have lower cost bases. It can cost between £500m and £1bn for a new gas-power plant.
“If this is the case and no new plant is brought forward then the electricity consumer will effectively be subsidising power plant operator already in existence to the tune of almost £2bn a year.
“The existing operators will be sitting there, as they would have been anyway, and getting paid for the privilege.
“But there is a real danger that if we do not get any new builds then developers such as ourselves will walk away from the UK market and then, when the Government realises it needs to have some new capacity, it won’t be there.”
One short-term beneficiary of this is the UK’s existing coal generation fleet. At the moment coal provides 20GW – or one-third of the UK capacity from 12 coal-fired power stations - and 14GW of this capacity has applied to be part of the scheme.
Around 7GW has applied for three year Capacity Market contracts and will have to undertake work to comply with EU emission regulations.
The remaining 7GW of capacity may get a contract for a year or two and then be forced to close. So by the turn of the decade some 13 GW of UK coal baseload capacity could come off line with nothing being built to replace it.
While many in the green lobby will be pleased to see cuts in coal capacity, this merely heightens concerns over the looming capacity gap.
The UK’s main nuclear operator EDF has secured extensions to the lives of most of its eight existing plants but if no further extensions are approved by 2023 only Sizewell B will be operating.
The first new nuclear plant at Hinkley Point is set to open that year, but as Mr Benson from Carlton Power highlights, new gas capacity is looking doubtful.
John Campbell, is vice chairman of coal producers body Coalpro, which represent companies such as Durham-based Hargreaves and the Banks Group.
He wants the Government to prolong the lives of the existing coal fleet from 2020 onwards
He said: “The situation is deteriorating quite quickly there is a baseload plant gap emerging as two-thirds of coal plant will be closed by 2023. Replacing coal with gas will be expensive, it needs significant capital investment and burning gas instead of coal is twice as expensive.
“The coal fleet has a crucial role to play in the future low carbon transition and closing it too early will expose us to some serious issues.”
A DECC spokesperson said: “The Capacity Market has been designed deliberately to buy the cheapest possible capacity. That can come from either making sure our existing plants don’t close down or it can mean building new plants.
“We make no excuses about that, because we want to get the best possible deal for the bill payer. Our system is not in favour of old plants – they are only being offered agreements for up to three years whereas new plants can get a 15 year agreement.”
However analysts and researchers who follow the energy markets closely have all expressed concerns over the Capacity Market’s ability to achieve its goal.
Phil Hewitt, of Yarm-based energy data specialist EnAppSys said: “It would make sense that existing or refurbishing plants will bid in less than new build costs (to the Capacity Market) so we may end up with the situation that new build will not get a good enough price signal to build.”
In a briefing note Cornwall Energy say: “Right at the beginning of the debate on the capacity mechanism back in 2011 we made the point that capacity per se is not the issue under EMR; it is flexibility. Gas is the logical counterpoint to an energy policy focussed on decarbonisation and commercialisation of renewables.
“But it is looking increasingly as if the capacity market is now simply a runaway train, with DECC having fully stoked the engine but no longer able to hold the course. Should we now be fearful of the prospect of an almighty crash at some point in the future?”
Only time will tell, but serious concerns look set to persist over the security of the nation’s electricity supplies for years to come.