Last week the government ran an energy auction. Didn’t get the invite? No surprises - this is not Saturday night primetime telly it’s fair to say. But it matters, because how public money is spent will shape the future of our energy system. And you might be surprised where it’s going.
So what is this ‘energy auction’ when it’s at home? Basically it’s a way to ensure the UK has enough electricity generation capacity (mainly power stations of one kind of another) to keep the lights on when we’re all using electricity at the same time (think cold winter evenings).
That’s why the government calls the auction the 'capacity market’. Existing power stations (including coal, gas and nuclear) - as well as some proposed new power stations - are guaranteed payments if they are able to provide power at peak times, usually over a period of up to 15 years.
How much those payments are is decided by the auction. Power stations try to undercut each other to win contracts from the government. So it’s a reverse auction, with prices going down - not up.
The capacity market is a central aspect of energy policy because no new energy generation can be built in the UK without financial support (we repeat: fossil fuels require subsidy too!). This is an issue because the Treasury estimates we need more than £200 billion worth of upgrades to our ageing energy infrastructure.
Since 2014 three auction rounds have been run - one each winter - allocating well over £3bn in subsidies. The large majority has gone to already existing fossil fuel and nuclear generators. At least £700m has been awarded to coal and diesel power alone.
Now we do need to make sure the lights stay on as we transition to a modern, renewable energy system. But the sums of money being allocated to dirty fossil-fuelled power sources - at least another £1bn this time round - are huge.
Do renewables get anything? The government runs separate energy auctions (with the even more snappy title of ‘contracts for difference’) for renewable generators. But it has banned onshore wind power from taking part. Due to the way the auction works, keeping onshore wind out the game means solar power has to be left out too. In case you didn’t know it, onshore wind is the cheapest new energy source the UK has - and solar power isn’t far behind.
So while we’ve just committed £1bn to fossil fuels, there will be near-zero for the two cheapest forms of low carbon energy - onshore wind and solar power - this year, and the next (and the next!). The renewables industry, its jobs and it’s climate-change-busting successes are in peril.
There was some better news from this year’s auction though - and a sign of things to come in a clean energy future. £250m is headed to new energy storage - clean methods for storing excess electricity when the wind is blowing hard or the sun beating down, ready for when we need it. This is essential for the modern renewable energy system we want.
In future we need more of this - the capacity market should be helping ease us off fossil fuels, not extend our dependence on them.
We launched our Blown Away campaign to stand up for onshore wind power. While fossil fuel generators continue to receive more public money year on year, cheap, clean onshore wind is being hung out to dry.
Photo: Phil Dolby, Creative Commons