Moody’s: generators lose £100M this winter – but retailers’ profit rises

Generators will lose around three months of revenue in 2018 – around £100 million – due to the loss of Capacity Market payments over the coming winter, according to ratings agency Moody’s. If the scheme is not successfully reinstated or replaced they will lose £1.1 billion in 2019, the agency said.

With the T-4 auction planned for January now cancelled, potentially £4.3 billion of contracts over the next four years will be at risk.

The figures, published in a briefing note, illustrate why demand side response (DSR) organisations and Tempus Energy were celebrating the ECJ’s ruling that the Capacity Market had not properly been considered in State Aid tests. The companies regard the payments as largely a source of revenue for old, largely fossil-fuelled, plant because DSR cannot compete in the CM auction on the same basis as generation.

After the ruling, payments under the scheme stop immediately, revenues earned in October 2018 will not be paid in December as anticipated and no further revenues will be recognised.

For companies with retail customers “the loss of capacity revenue will be offset in the short term by higher retail profit”, Moody’s noted. Payments already made for October and November 2018 will be reimbursed. “By mid-2019, however, we assume that retail prices will fall to reflect these lower costs,” it said.


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