Despite no definitive decision yet from the European Commission about reinstating EU State aid approval for the UK’s Capacity Market, the Department for Business, Energy and Industrial Strategy (BEIS) is confident that it will resume – and hopefully before the next delivery period begins in October 2019.
As part of draft legislation recently published by BEIS to manage the CM’s operation during the current standstill period, suppliers are being advised to restart collecting payments.
Indeed, Ofgem has once again included an allowance for Capacity Market (CM) costs within its new electricity price cap for domestic customers for the next charging period (April to December 2019). A CM allowance was also included in the first price cap period (January to March 2019).
Late collection for 2018/19 charging period
For larger business customers who pay for the non-commodity element of their electricity charges on a pass-through basis, the normal November to February charging period, where CM charges are billed, has already passed.
This means that the forecasted £89.87 per MWh to cover the cost of the CM for winter 2018/19 has not yet been recovered, as the Capacity Market was suspended right at the start of the charging period.
But in anticipation of the CM resuming, we’ve been advising pass-through customers to continue to budget for CM charges since last November, and will be in contact shortly to advise next steps.
Any business paying a fixed rate for electricity will already have CM costs included as part of their overall rate, so no changes will apply.
Already preparing for business as usual
Although a decision is still pending from the EU, the government is confident of a positive outcome.
BEIS has announced that it now plans to hold the T-1 auction, which was due to be held in January, as soon as possible. Payments to generators will then be delayed pending EU State aid approval.
But to ensure these payments can be made as soon as this happens, BEIS is urging suppliers to gather funds now.
European Commission already backing CM
The European Commission is already of the mind that the CM is legitimately operating.
Back in July 2014, prior to the launch of the scheme, it ruled in that it was compatible with EU State aid regulations.
Indeed, it concluded that “the scheme was necessary to guarantee security of electricity supply in Great Britain” and “was in line with EU energy policy objectives, and did not distort competition in the Single Market”.
But following an appeal from a company operating in the UK energy market, the EU Courts of Justice (CJEU) over-turned the Commission's decision on procedural grounds.
The CM was therefore put into a standstill period, and while BEIS considered the logistics, the collection of charges was suspended.
But following consultations by BEIS and Ofgem, BEIS has decided that payments can now be collected in preparation for the scheme resuming.
DSR participants in spotlight
For now, the Commission is being asked to look at the CM in more detail, and in particular, at “the participation of energy consumers offering to reduce their electricity consumption in times of supply disequilibrium in the electricity market” – i.e. demand side response (DSR) participants.
So until this investigation has been completed – or the Commission’s appeal of the CJEU’s decision has been heard – the CM remains in standstill.
Of course, in the very unlikely event that EU State aid approval isn’t granted for the Capacity Market – or if it has to be changed – then those customers on pass-through rates would have any Capacity Market charges paid from November 2018 either refunded or reconciled.
If you have any questions regarding Capacity Market charges or payments, then contact your Client Lead (for existing nBS customers). Or email us at nBS@npower.com.
We will also keep you informed of any updates.
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