A raft of proposed new gas-fired power plants will be shelved for at least a year after failing to win Government subsidies, experts have predicted.
Some old power plants could also be at risk of closure after missing out on the payments, potentially worsening the capacity crunch in coming years, they warned.
Under a new “capacity market” policy, designed to keep the lights on, ministers are offering retainer-style subsidy contracts to existing or proposed plants to guarantee they will be available when needed from 2018.
At least eight big new gas plant projects were vying for the contracts but are thought to have missed out in favour of existing old plants that are cheaper to keep running.
Proposed plants that miss out will have to wait and consider competing in another auction a year from now.
A “reverse auction” to award the contracts has been taking place this week and is understood to have closed on Thursday night at a price of between £15 and £20 per kilowatt of capacity – far lower than had been expected by the industry, and less than half the £42 assumed by the Department of Energy and Climate Change (DECC) in its impact assessment.
The result should lower the cost to consumers, which had been estimated at £14 a year on annual bills, but will not result in new plants being built and could have unintended negative consequences, experts said.
The DECC has recruited as many plants as it thinks are required in 2018-19. However, some of those old gas plants deemed surplus to requirements for 2018 could have been needed to keep the lights on in intervening years and may no longer see it as economic to keep running.
Gareth Miller of consultants Cornwall Energy said: “It’s not necessarily all good news because clearing at a low price will prompt some of the older CCGT [gas] fleet to consider mothballing between now and 2018-19.”
He said this could simply require more money to be spent on emergency “balancing services” to prevent those plants mothballing next year.
Peter Atherton, energy analyst at Liberum Capital, agreed. “There is a risk now that people will start to take plants off,” he said