Capacity Market: Ofgem rejects plan to collect payments during suspension

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Ofgem has rejected a modification to the Balancing and Settlement Code (BSC) under which the Capacity Market ‘supplier charge’ would be collected from customers on an interim basis, and held for potential distribution to CM contract holders, saying it does not have the powers to make the decision.

The rejection throws the spotlight on Beis, where a consultation on whether to make collections via a change in regulations closed in mid-January. The modification (378) was seen as a ‘backup’ to the Beis solution and would have been withdrawn in the event BEIS went ahead.

The CM is suspended while it is awaiting new State Aid clearance from the EU, but payments will be backdated if and when the market is reinstated. Some market parties want to continue collecting the payments centrally, so CM contract holders have assurance that the money is ‘ring fenced’ if required, and there is no ‘supplier shock’ in billing customers for backdated payments.

As it is, business customers with disaggregated bills may decline to pay CM levies while the market is out of action. It is not clear at the moment how domestic suppliers are managing the levies if they are still being collected (assuming none has reduced its bills accordingly), and ensuring the funds will be there when required. Meanwhile, the regulator allowed for a continued levy in setting its price cap for standard variable tariff customers this month.

Taking the decision, Ofgem said it “does not consider that it has the power to approve a modification, that is designed to compel suppliers to pay (a proxy for) the Capacity Market Supplier Charge in light of the fact that Parliament has established a specific and bespoke statutory regime for regulating the Capacity Market.”

See the decision here

  • This article was first published on our sister site, New Power.

Related stories:

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EMR delivery body confirms all capacity payments suspended, auctions shelved

Beis plans summer top up auction while Capacity Market suspended

Iberdrola and Drax agree Capacity Market risk share to get deal over line

The money and the power: What next for Capacity Market

Tempus wins court case over Capacity Market bias against DSR

Tempus Energy: DSR providers ‘ecstatic’ over Capacity Market judgment

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Decc “confident” of beating Tempus legal challenge

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10 COMMENTS

  1. You write that “the Capacity Market is suspended whilst it is awaiting new State Aid clearance from the EU”. Really?

    That infers that the CM’s recommencement, operating just as before, is purely a matter of addressing some minor procedural matter in Brussels. If you troubled to inspect the relevant judgement from the European Court of Justice, I think you will find that the ruling found that various substantive features of the policy design of the CM did give rise to “serious doubts” about its compatibility with State Aid rules.

    Perhaps your correspondent might read paras 203 to 207 of the judgement and paras 27(e) and 69 of the official guidance? And then completely alter the emphasis in this news story.

    • A very impassioned response, Andrew. Kudos. However, it feels like you’re trying really hard to be offended and find fault where there isn’t any. The official text published by the General Court points point to ‘procedural’ rather than ‘design’ concerns:

      “It is apparent from examination of the first plea that there is a body of objective and consistent indications, based (i) on the length and circumstances of the pre-notification phase and (ii) on the incomplete and insufficient content of the contested decision owing to the lack of appropriate investigation by the Commission at the preliminary examination stage with regard to some aspects of the capacity market, that demonstrates that the Commission adopted the contested decision despite the existence of doubts. Without needing to adjudicate on Tempus’s other arguments, the Court concludes that the assessment of the compatibility of the measure notified with the internal market gave rise to doubts within the meaning of Article 4 of Regulation No 659/1999, which should have led the Commission to initiate the procedure referred to in Article 108(2) TFEU”

      http://curia.europa.eu/juris/document/document.jsf?text=&docid=207792&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=3701318

      • I am deeply suspicious as to why you wish to remain Anonymous. I note you do not choose to cite from the paragraphs I cited. Why such modesty?

        • I use Anonymous as in the age of social media, those losing a debate tend to distract from it by drawing on personal details and i find this approach takes that strategy away from them and keeps it to the facts.

          I quote from the conclusion as this is in essence the decision itself. I see the EC have re-affirmed that it was in fact procedural in their opening decision this morning:

          “The General Court did not rule on the compatibility of the Capacity Market scheme with EU State aid rules. Rather, the Court considered that the Commission should have opened an in-depth investigation to gather more information on certain elements of the scheme relating to the participation of energy consumers offering to reduce their electricity consumption in times of supply disequilibrium in the electricity market.”

          I agree with you that there is substance (i.e. DSR specifics) which need addressing as part of the investigation, but lamenting the author for sticking to the facts feels like a gross overreaction.

          http://europa.eu/rapid/press-release_IP-19-1348_en.htm

  2. Don’t worry we have some great negotiators in the UK as evidenced by Brexit.

    Let’s send BJ and Froggy across to represent at the ECJ.

  3. Essentially, Andrew Warren points out that Janet Wood’s unqualified quotation regarding CM payments can be misconstrued. The EU will at least seek to deal with Tempus’s main objection (that they felt strong enough to act upon) which could impact upon future schemes.There is no guarantee that re-instatement and indeed back-payments will be made in accordance with existing legislation and process.

    • Of course there is no guarantee, the investigation is yet to take place which is why Janet Wood is right to incorporate the word “if” at two key points in the third paragraph. To be frank, i’m bored with faux outraged, the article is matter of fact and wholly uncontroversial.

      Also, it depends on what you mean by “the EU will at least seek to deal with Tempus’s main objection”……… they’ll certainly investigate/consult on the DSR issues but as you elude to, the outcome of that investigation is tbd. It could suggest changes to the scheme but it could equally reaffirm their original approval and return to the status quo. The court mandated the EU Commission to investigate further (like it or not, it was a procedural challenge as per the actual decision), the court didn’t pre-judge the outcome of that investigation.

      Janet – thanks for the useful article.

      David, Andrew – thanks for the discussion. I genuinely hope we see continued emergence of DSR and other flexible solutions in the GB market. It’s key these flexible technologies are remunerated for the service they provide and there’s plenty more work to be done to achieve this in the UK market – shorter settlement periods and continued cash out reform are key IMO. However, playing devils advocate, I’d argue this challenge has actually slowed said progress and will make it difficult for future (genuine turn down) DSR aggregators to sign up customers and will inevitably increase the cost of capital for battery storage developers relying on project finance. In essence, it will be those large incumbents with bigger balance sheets who will walk away from this scenario, not the smaller players actually facilitating change/progress who have already seen financing frozen and default events called. Lets hope the “disruptors” are satisfied with their disruption as the compounded uncertainty could very well kill the very interests they claim to represent.

  4. For a fuller discussion of the Capacity Market read our initial take, back in December.
    https://www.newpower.info/2018/12/what-now-for-the-capacity-market/
    It still holds up and I’ll just point to this:
    “In some cases, state aid investigations have taken as little as 6-12 months. But the current permission was set aside on the grounds that the authorities had not spent enough time and effort in investigating its implications for DSR. It seems unlikely that anything less than a full investigation will be contemplated, which could take up to 20 months”

    One point not really highlighted was that generators (and DSR participants, for that matter) can’t get out of their Capacity Market contracts (although the requirement for testing, etc has been cut back).

    And Moody’s expected supply prices to fall soon in response, but the regulator’s price cap has stopped that happening, for SVT domestic customers at least.

    • Congratulations on your acquisition of New Power. I’ve just downloaded the March edition for lunchtime reading…….. looks fairly topical.

      DECC/BEIS were always going to appear confident, they are hardly going to take a different approach. What’s more significant to me is that Ofgem have included CM payment in price cap, the Commissions decision to appeal the Courts decision (with UK support), and perhaps most critically, industry (generators and suppliers) seem as confident as I have ever seen them that the CM will be reinstated in full.

      I keep hearing predictions that the Phase 2 investigation could take over 18-20 months to complete. I’d be very surprised if that’s the case given Hinkley Point C took 9-month and that only impacted a single company rather than an entire market of a member state. The Commission have already signalled that they understand the urgency of this particular case….. “The commission understands the importance of a prompt resolution of this matter for the market.”

      https://www.spglobal.com/platts/en/market-insights/latest-news/electric-power/013019-european-commission-to-investigate-uk-power-capacity-market-approval-promptly-despite-appeal

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