Tempus Energy CEO Sara Bell says companies that hold Capacity Market agreements will know whether or not they will get paid before the year-end.
The company is challenging the government in the high court in a bid to enforce the European Court of Justice’s ruling that the Capacity Market is unlawful. Bell wants to stop auctions proceeding and agreements being paid out.
The Judicial Review commences 11 November, with a judgment to be handed down around six weeks after the hearing.
“In the event that the court finds in our favour, then … the fact that the Capacity Market is unlawful state aid will be spelt out clearly to government and the contracts they are telling holders will be paid out later will not under UK law be able to be paid out,” says Bell. “At this stage, that is £1bn for [last] winter.”
If Tempus wins the case, and the European Commission then rubber stamps and reinstates the CM, Bell says that £1bn stays gone.
However, if the Commission completes its investigation and the Capacity Market is approved and reinstated in October before the Judicial Review, as the government hopes, then the money gets paid – as it will be if Tempus loses the case.
Should the UK crash out of the EU on 31 October, “the legal action is probably irrelevant,” as state aid rules cease to apply, says Bell. “But I imagine that the Capacity Market is the least of our concerns in that scenario.”
Multi-year contracts and lower thresholds
Beis recently mooted plans to reduce the 2MW minimum threshold for CM participation in the five-year review, noting the 1MW threshold for some National Grid flexibility services. The department states it also “remains open” to considering multi-year agreements for DSR, if evidence supports that view, and will start to gather information.
Bell interprets those signals to mean that the Commission has indicated it is going to re-approve the CM “along the lines that we have asked for”.
However, she thinks a 100kW minimum threshold is necessary to unlock load flexibility, rather than behind the meter generation, which Beis believes makes up around 70 per cent of DSR.
“Multiyear contracts and small clip sizes would be a very exciting scenario, because you can then start building real flexibility,” says Bell. “1MW of [load] flexibility is a massive customer. Ideally it would be 1kW [minimum threshold] but that is not going to happen and 100kW does enable aggregation for retailers [domestic energy suppliers].”
Change the rules
Some of the distribution network operators have reduced minimum thresholds for flexibility to as low as 50kW. Bell thinks that is a welcome development, as is the collective DNO commitment to consider flexibility alongside reinforcement, but points out the DNO opportunity is currently tiny, and requires regulatory innovation.
“The regulatory framework does not go far enough in forcing those changes. In Australia, the DNO has to consider all other options that are clean before they can consider putting in new equipment,” says Bell. “In that regulatory framework, there is no possibility of sticking with a legacy business model.”
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