The delivery year 2022 was opened to auction in 2020, and ten auctions have been held since then, six of them in 2021. These capacity auctions resulted in the following prices, in chronological order:
The operations are recorded as follows:
The British capacity mechanism was introduced in 2014 to ensure security of electricity supply by providing a payment for reliable sources of capacity, alongside their electricity revenues, to ensure they deliver energy when needed. It is based on a system of auctions for operators, organised by the network operator “National Grid” to procure capacity 4 years ahead of delivery; delivery years run from 1 October to 30 September. Capacity operators which have been successful at the auctions are remunerated in the year of delivery out of a fund consisting of contributions from electricity suppliers.
The electricity suppliers’ contribution to this mechanism is proportional to their sales to customers in the peak period and the cost of capacity is passed on to final customers through their sale price.
EDF Energy is concerned by both aspects of this system, as an operator of electricity plants and a supplier.
For accounting purposes, the remuneration received in its capacity as an operator is recognised in sales revenues in the year of delivery, and the contribution paid to the mechanism in its capacity as an electricity supplier is recognised in energy purchases over the peak period. The cost of the capacity mechanism passed on to final customers is recognised in sales revenues as and when the electricity is delivered.
In November 2018, a judgment by the General Court of the Court of Justice of the EU had the effect of annulling the European Commission’s State aid approval for the capacity market scheme, leading to a standstill period during which no capacity payments could be made.
In October 2019, following a further State aid investigation; the European Commission reapproved the capacity market scheme, enabling the resumption of capacity payments.
Deferred capacity payments in respect of the standstill period were made to capacity providers, including EDF Energy’s nuclear, coal and gas-fired generation, in January 2020. The capacity market continues to operate, although the inclusion of new emission limits means that unabated coal-fired generation will be unable to compete for capacity agreements for periods after 30 September 2024. The UK Government has also announced its intention to require unabated coal-fired generation to close by this date. The UK Government’s five-year review of the capacity market, published in 2019, committed to retaining the capacity market as a guarantee of system reliability and to making further incremental improvements to its design. The UK Government’s Energy White Paper, published in December 2020, confirmed that the next review will take place by 2024 and that the UK Government intends that the mechanism will act in concert with other markets to incentivise investment in capacity.
A capacity mechanism was set up in 2019 using rules approved in a decree of 28 June 2019 issued by the Economic Development Ministry.
This mechanism is based on an auction process organised by TERNA, the Italian transmission grid operator, for each delivery year. Operators of existing and future production or storage units can participate in the auctions. The operators of the capacities selected are paid through a fixed premium during one year for existing capacities and 15 years for future capacities. The fixed premium is paid during the delivery year.
The selected operator must offer its capacity on the day-ahead market (Mercato del Giorno Prima) and the balancing market (Mercato per il Servizio di Dispacciamento). If the selling price on these markets reaches a level exceeding a strike price defined by the Italian Regulatory Authority for Energy, Networks and Environment (ARERA), the operator must repay the surplus to TERNA.
Two auctions were held during 2019 for delivery dates set in 2022 and 2023, and Edison won 3.8GW for 2022 and 3.3GW for 2023 for an annual price of €75,000/MW for new capacities and €33,000/MW for existing capacities. Edison did not participate in any auction in 2021.
The fixed premium is recorded in income during the corresponding delivery year, and reduced if appropriate by any repayments made to TERNA, or if the power plant is unavailable.
