Early capacity market costs to hit business energy bills


Energy suppliers will not be allowed to delay payments for the early capacity market auction. That means businesses face higher than anticipated energy bills next year and could see suppliers either renegotiating contracts or using clauses to add policy costs to them.

The department of energy and climate change (Decc) has confirmed it will hold an early auction to supply capacity to keep the lights on for the winter after next (2017/18).

Because suppliers recover the costs of government policy via energy bills, an earlier than anticipated auction will affect business energy contracts.

In its consultation response, Decc acknowledged that “where suppliers have locked in contracts with customers, this may make it difficult to pass on increased costs to these customers”.

However, it may be possible that change of law clauses will allow suppliers to change contracts with customers and make them pay the extra cost.

Should suppliers be unable to pass on costs from particular customers, they will have to either absorb the increase, or pass it on to other customers.

Despite concerns raised by suppliers and TPIs, Decc said security of supply trumped their operational challenges.

Because it has to pay capacity providers at time of use – i.e. starting in winter 2017/18 – suppliers will have to make payments before then. Decc therefore ruled out leeway on delaying payments.

See the full government response here.

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