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Capacity Market levy collection set to continue

In a consultation published just before Christmas, the Government has set out its short-term plans around the Capacity Market while it awaits a decision from the European Commission on the future of the scheme, including its decision on collecting Capacity Market payments while the scheme is suspended.

In November, the Capacity Market was suspended indefinitely as the European Court of Justice effectively removed state aid approval for the scheme and introduced a standstill period until the scheme could be approved again. In its ruling, the ECJ found the European Commission had not properly investigated the mechanism when granting it state aid approval back in 2014. You can read more about the ruling in our blog post here.

Payments for providers

Whilst the suspension has far-reaching implications for generators reliant on payments for their agreed capacity provision this winter and beyond, it also raised questions about the Capacity Market levy being collected by suppliers during the standstill period.

After the November ruling, BEIS stopped collecting Capacity Market payments from suppliers. However, the majority of electricity supply contracts smear out the cost of the Levy throughout the year, factoring it into the tariffs and rates that consumers and businesses pay, meaning suppliers have continued to take payments from their customers since the standstill period began.

In its consultation, BEIS has confirmed that it intends to make deferred payments to those generators who met their capacity obligations during the standstill period, providing a positive state aid decision is reached by the EU Commission.

BEIS has recommended suppliers continue to take payments from customers to ‘minimise uncertainty and disruption’ –  essentially avoiding the bill shock of suppliers suspending payments only to send a bill for outstanding Levy costs in the future.

An ‘opening final decision’ is expected from the European Commission in early 2019 and BEIS is consulting upon the best way to collect these payments during the standstill (either by the Electricity Settlement Company or ESC to continue to collect the Supplier Charge, or through a modification to the Balancing and Settlement Code or BSC) – however the message is clear: businesses should expect to be charged a Capacity Market Levy (or equivalent) for the foreseeable future.

CM auctions to continue

Plans have also been made for the replacement T-1 auction for 2019/20.  Originally planned for January 2019, the auction was put on hold following the scheme suspension. This will now take place in the summer and will confirm the final cost of the scheme for next Winter, assuming a positive state aid decision is given.

What does this mean for businesses?

The Government hopes to make deferred payments for capacity delivery during the standstill period for generators who met their obligations and it is expected that this will continue to be funded by consumers, so businesses should expect to receive Capacity Market Levy charges for the foreseeable future and the chances of receiving a refund seem unlikely.

National Grid has already confirmed that there are no security of supply concerns for this winter. However, the longer the suspension is upheld, the greater the concern for Winter 2019/20. Whilst the Government is going ahead with its T-1 auction, it will be unable to pay generators for Winter 2018/19 or make Early Auction payments to generators in Summer 2019 for the coming winter until the scheme is approved for state aid again.  This loss of income may have significant consequences for some plants, and any closures would have an impact on supply margins next winter. All eyes will be on the European Commission for a speedy resolution of the issue over the coming weeks.

To understand how the Capacity Market affects your energy bills, give us a call today on 08451 46 36 26 or email