Capacity Market: two options to resume payments in Q1, BEIS seeks views by 10 January

The industry should have more certainty by 10 January over how suppliers’ obligations to make Capacity Market payments will be reinstated.

The Department for Business, Energy and industrial Strategy says it is ‘minded to’ restart collections, so that Capacity Market providers have confidence that they will receive contracted payments, if and when the Market receives new State Aid clearance and to reduce risks for suppliers.

According to BEIS, the Commission has confirmed that it can continue to collect CM payments. It plans to do so, because if State Aid clearance is granted, it will collect all the payments due from 1 October onwards – and that ‘spike’ in payments presents a financial risk to parties across the market, even if the missing payments are taken over several months.

The fastest route to resuming payments is to change the Regulations, and BEIS is consulting on whether to make such changes. It has asked for responses by 10 January and believes payments could be resumed in February if it has support.

An alternative proposal, a BSC modification, is effectively an agreement between the market participants to collect and hold payments. That could be in train by the end of January, if it can be treated as an ‘urgent’ modification to the code. That awaits a decision from Ofgem, expected by 9 January. With time for legal drafting and ten days of consultation, the modification could be decided by the end of the month and implemented in March.

That proposal would be backdated to 1 January and would collect the ‘missing’ payments over the first two months.

Either solution should lift fears that Capacity Market levies will be removed from calculations of Ofgem’s supplier price cap, due to be reviewed in February.

The BSC proposal said, “Being able to centrally plan for compliance with the CM will make it more equitable for customers as all suppliers will comply. This allows suppliers time to manage funds for repayment and reassures investors that funding for back payments is being accumulated.” It warned that, “A customer facing a one-off bill in say 8-9 months of CM back payments may well get pushed into debt, fuel poverty or, as a business user, insolvency.”

Both proposals cover payments until next winter. BEIS said it was “unlikely” that the timescale for State aid re-approval would slip beyond 1 October; more information on that is expected from the Commission early in 2019.

Meanwhile, although capacity providers have to maintain their CM obligations, some flexibility is being introduced.

The government says, “agreements awarded under past auctions are still capable of being administered and enforced during the standstill period”. And the EMR Delivery Body warned, “Continuing to meet obligations under existing capacity agreements will enable capacity providers to be in a position to be eligible for the deferred payments due in relation to the standstill period”.

The ESO will continue to publish capacity notices in the event of a shortage and if providers fail to respond they will pay penalties, if and when the CM payments are reinstated.

For projects still in the pipeline, providers have to meet milestones or face penalties, but the situation should be clearer by the next milestone, at the end of March. Providers were due to pass metering tests and provide connection agreements (for distribution-connected projects) by this date, but BEIS is consulting on whether to delay those obligations during the standstill period.

Meanwhile, providers can trade their obligation in the secondary market, possibly deferring decisions on construction, and can apply to change the location of planned plant.

Providers can also ask for their credit cover to be refunded, but will have to post it again if the market is reinstated. In its consultation, BEIS floated proposals for more ‘flexibility’ on credit cover, mutualisation and enforcement provisions over the ‘standstill’ period.

Respond to the BEIS consultation

Follow progress on the BSC modification 

Further reading