Government has detailed its plans for a T-1 Capacity Market auction for delivery over the coming winter.
It aims to hold an auction by August at the latest, and has outlined how agreements will be awarded and honoured – subject to state aid approval.
The Capacity Market is suspended following a ruling by the European Court of Justice that found in favour of Tempus Energy, which took the government to court, arguing that the European Commission had not followed due procedure and that the market design discriminated against demand-side response.
That ruling came just as power providers providers had pre-qualified for a year ahead, or T-1 auction that was due to be held in January 2019 for delivery next winter. To ensure sufficient headroom on the power system, government said it would run the auction at a later date and consulted with market participants on its approach.
In its consultation response, the Department for Business Energy & Industrial Strategy (Beis) said it plans to issue ‘conditional capacity agreements’ to winning bidders, as state aid approval is unlikely to be granted at the time of the auction.
The department said it anticipates approval will be received ahead of the start of the delivery year, i.e. by November. However, it will make provisions to make back-payments to successful bidders if approval is not received by that point.
Those with conditional agreements must deliver their obligations and penalties will apply to those that do not, or fail to hit delivery milestones.
Beis said it intends to allow secondary trading of conditional agreements after the auction. It will waive credit cover requirements, though will introduce termination fees if non-proven DSR over 2MW does not provide a test certificate.
However, because lead times will be shorter, Beis plans to make changes to rules around tests for DSR providers.