BEIS confirms T-1 auction in summer 2019 but questions remain over payments

BEIS has confirmed plans to hold a ‘T-1′ Capacity Market auction next summer, for delivery in winter 2019/20, despite the fact that the EC has set aside the Capacity Market and payments have been halted. BEIS said the auction – which requires consultation and regulatory changes before it can go ahead – would be on the basis that agreements are conditional on the outcome of the Commission’s formal investigation of the Capacity Market.

The clarification will be welcome to CM participants, but meanwhile capacity providers are pressing government to give them (and their investors) some assurance over whether they will receive CM payments for the current period if and when the market is reinstated. That uncertainty may extend to payments under the planned 2019/20 T-1 auction, depending on how quickly the EC can make a new State Aid determination.

One option would be for suppliers continue to make the CM payments that are falling due, and the payments to be held separately, so they can be passed on to capacity providers in due time (or returned to suppliers if the CM is not reinstated).

VPI Immingham has submitted an ‘issue’ to the Balancing and Settlement Code to explore whether Elexon could continue to collect payments in this way. The issue proposal says, “It is prudent that Suppliers continue to collect CM payments from customers. At present, the Electricity Settlements Company is under instruction from the Secretary of State not to collect CM payments from Suppliers. It is also unclear whether Suppliers can lawfully continue to collect CM payments from consumers, despite potentially having to do so within the next 7-9 months (depending on outcome/ timing of state aid clearance).”

VPI and co-proposer Salted Cogeneration say this is “pragmatic contingency planning” and ask for it to be treated as urgent. They say “CM providers are more likely to go on operating as usual this winter if they believe CM payments will be back dated in the future. Repayment is more likely to be in a timely manner if the CM payments have been collected over the intervening period.”

See the issue (Issue 76) here.

At the moment National Grid is operating the Capacity Market, but “short of making payments”. That means it will use CM mechanisms, such as sending capacity alerts to the market; it also means market participants have to carry out appropriate tests and other activities, which incur a cost.

BEIS was positive about a new State Aid examination of the CM, saying, “The Court did not find the design of the GB CM to be incompatible with State Aid guidelines.” BEIS said the Commission expects to open a new investigation “in early 2019″ and added, “We are exploring together with the Commission the most rapid and effective path to conduct the formal investigation into the scheme in a way that meets all process requirements referred to in the judgment.”

Frank Gordon, head of policy at the REA, said: “We welcome this clarification from government, in particular National Grid’s commitment to continue to operate the scheme and the plans for a new ‘T-1’ auction in summer 2019 while discussions with the European Commission are on-going. We caution, however, that the summer date may be challenging given the processes to meet.

“We believe the Capacity Market to be a fundamentally flawed scheme, one that prejudices dirty diesel generation and fossil fuel plants over modern clean technologies whilst not addressing the value for money and decarbonisation objectives for the UK’s energy system. We agree that in principle though that the market should remain in place for existing projects in the immediate term.

“We are encouraged by the degree of clarity the government has offered here today as the ECJ’s ruling has created significant uncertainty for the impacted developers and wider power system alike.”