Today we’re sharing information from TEC, the sector-owned (not-for-profit) energy consortium on energy buying following the recent suspension of the Capacity Market scheme. The capacity market falls in the non-commodity costs category of your electricity bills and this particular charge makes up around 3% of a larger electricity users bill.

The Capacity Market is the regulated scheme designed to ensure payments are made to available generators on the network to provide electricity when renewable energy providers on the grid cannot. On 15 November the UK Government suspended Capacity Market auctions and payments after the European Court of Justice annulled the European Commission’s 2014 approval of the Capacity Market scheme. Though the government aims to reobtain that approval we can’t predict how long this will take or what the outcome will be.

What next – for electricity generators?

BEIS has suspended payments to scheme participants and auctions. For the time being and with immediate effect generators will not receive the capacity market payments they were expecting.

What next – for larger electricity users?

Electricity suppliers collect money from users to cover the costs of the scheme. The nature of the contract they are on makes a difference to the potential impact on users.

If users are on a Flexible Power Framework (pass-through contract) this means that they pay these costs as a reference value within their unit rate. There is no individual line item on their bill. The reference value is set at the anniversary of their contract period and based on the supplier’s forecast of the CM cost at the time.

Under normal circumstances, the supplier would reconcile the reference value to the final published cost of the scheme. That’s what will still happen if things revert to the situation before this ruling and they receive confirmation of the published costs of the scheme in time to process a normal reconciliation.

If the outcome is still unknown, the supplier would typically still process the reconciliation. If the outcome of the Government’s appeal is unsuccessful they could receive a rebate based on the full reference rate applied.

However.

If users were on a fixed price contract they could find that even if the outcome of the ruling is unsuccessful, the price has effectively been fixed, and the supplier may decide to keep the proportion to cover Capacity Market costs included as additional margin.

We’ve been advised that our members are welcome to contact TEC for further information whether or not they are TEC members.

No one knows which way this will go and with so much uncertainty we will continue to monitor the situation. The statement made by Claire Perry, Minister of State for Energy & Clean Growth can be found below.

The UK Government’s response: Statement from Claire Perry, Minister of State for Energy & Clean Growth

“On 15 November 2018 the General Court of the Court of Justice of the European Union found in favour of Tempus Energy, against the European Commission, removing the Commission’s State aid approval for the UK Capacity Market. The Court held that the Commission should have consulted more fully before granting State aid approval in 2014. This judgment was decided on procedural grounds. It was not a challenge to the nature of the UK Capacity Market mechanism itself.

The judgment removes State aid approval for the Capacity Market, preventing the UK Government from holding any capacity auctions or making any capacity payments under existing agreements until re-approval.

National Grid has confirmed that they do not believe the judgment will cause any risk to security of supply this winter. They have informed market participants of the judgement.

We are considering the judgment in detail alongside the European Commission and are working to support them as they consider the legal options available.

We believe the Capacity Market is an effective mechanism that is designed in such a way as to minimise costs to consumers. The design of the Capacity Market has not been called into question, and our focus is therefore on ensuring it can be reinstated as soon as possible.

As part of this, we are seeking immediate State aid approval for a T-1 auction that will cover winter 2019/20. Alongside this, we are working to reinstate the full Capacity Market regime and are discussing the swiftest means of doing so with the Commission.

The Government and National Grid will ensure that market participants are kept updated. I will keep the House updated as appropriate.”