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UK's latest power capacity auction clears at 6.95 pounds/kW/yr

(Adds names of bidders awarded agreements, government comment)

By Nina Chestney

LONDON, Feb 3 (Reuters) - Britain's auction to secure back-up electricity generating capacity for the winter of 2017/18 ended with a very low price on Friday but appeared to throw a lifeline to the big Eggborough coal-fired plant which is due to close next month.

The auction cleared at 6.95 pounds per kilowatt (kW) per year, National Grid (LSE: NG.L - news) said on its website, a record low.

Analysts had expected the auction to produce a price of around 20 pounds, based on previous auctions which have settled at between 18 and 22.50 pounds/kW/year. Experts say a price of 35-45 pounds is needed to attract new gas plant investment.

The government said in a statement that the low price provided "guaranteed electricity capacity at a low cost to bill payers".

Eggborough Power Ltd won a contract, which could extend the life by one year of its 2 GW coal plant in Yorkshire that was due to close this March. The company was not immediately available for comment.

Other contract winners included SSE (LSE: SSE.L - news) , RWE (IOB: 0FUZ.IL - news) , EDF (Swiss: EDF.SW - news) Energy, Uniper (Swiss: UNIPE.SW - news) and Drax Group (Frankfurt: D9F2.F - news) .

A National Grid document showed a total of 54.4 GW of capacity was awarded agreements. Around 4.85 GW exited the auction above the clearing price.

Britain began capacity auctions in 2014, looking to head off future power shortages as coal plants close and as investors said there was little incentive to build new power plants.

The auctions reward successful bidders for keeping power plants on standby so they can be called upon when renewable energy production is low or demand is high. (Additional reporting by Sangameswaran S in Bengaluru; Editing by Greg Mahlich)

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