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Energy auctions continue to result in higher than necessary prices: Inenco response

16th May 2018

The National Audit Office has today published a report into the 2017 Contract for Difference (CfD) auctions - David Oliver, Senior Energy Consultant at Inenco said:

The National Audit Office has today published a report into the 2017 Contract for Difference (CfD) auctions, concluding that the auction design had resulted in higher cost to consumers. Smaller projects that were more expensive per unit of electricity were awarded contracts, pushing up the strike price for all successful bidders.

We believe that in both the CfD and Capacity Market auctions, design changes are required to ensure no project is paid more than is necessary to keep costs as low as possible for consumers.

Commenting on the report, David Oliver, Senior Energy Consultant at Inenco, said:

“The NAO has acknowledged that the outcome of the 2017 CfD auction has led to higher energy prices being paid for businesses and homes over the next decade thanks to more expensive projects ‘pulling up the strike price’ for everyone. Whilst some changes will be made to future auctions, the fact remains that the government has over-paid for projects that could have be delivered at a far lower cost, locking in higher bills for homes and businesses for years to come.

“We believe that a similar flaw also affects the annual Capacity Market auction, where generators are paid the auction strike price, even when they submit lower bids.

“The main message from today’s report must be a review of the auction design to optimise the process and ensure no project is paid more than is necessary to ensure future security of supply from low carbon generation at as low a cost as possible to homes and businesses. Such a review should be extended to cover the Capacity Market auction as well as the CfD auction.”