Last week I informed the House that the European Commission had moved on to the next phase in their investigation of the GB capacity market. This is an important first step in restoring state aid approval for the capacity market as soon as possible.
On 19 December 2018, the Government consulted on a range of changes to the capacity market. These changes would allow for a capacity market auction to be held later this year for delivery in 2019-20. The consultation also covered how existing agreements would be managed during the current standstill period.
The Government have today published a response to that consultation. The vast majority of respondents supported the proposals to allow for an auction for capacity for winter 2019-20 to be held, with payments conditional on a positive state aid approval. They also supported the consequential changes to milestones required as a result of the auction being held later in the year than usual. There was also support for the proposed changes to the management of existing agreements to ensure that scheme obligations continue to be enforced in a pragmatic and proportionate way.
In the light of these responses I can confirm that the Government have today laid draft regulations for the approval of the House to enable these changes to be made to allow an auction to be held in summer 2019.
In our consultation, we also covered the issue of how suppliers can make provisions for suspended payments. In their response to the consultation, capacity market agreement holders identified the importance of them having confidence that they will receive their suspended payments in full after the end of the standstill period. They therefore favoured suppliers making adequate provision to make these payments. We have considered the consultation responses carefully and considered how to ensure that we can deliver this ambition in the most effective and timely way.
I can therefore confirm that the Electricity Settlements Company will establish a system to facilitate suppliers’ meeting their supplier charge liabilities during the standstill period. The inclusion of supplier charges within the price cap already means that all suppliers should be factoring this into their variable tariffs during the standstill period and making prudent provision to enable them to be paid immediately after the end of the standstill period. During the standstill period, the Electricity Settlements Company will:
issue a schedule of post-standstill supplier charges on a monthly basis setting out their liabilities apportioned according to the current formula based on suppliers’ demand in 2018-19. This will enable suppliers to manage their finances effectively;
accept payments against that schedule in an interest-bearing account.
Ofgem will continue monitoring the financial resilience of suppliers, including to understand how any suppliers that are not paying into the Electricity Settlements Company system are making suitable provision to cover their supplier charge liabilities.
Following the end of the standstill period the Electricity Settlements Company will:
invoice suppliers at the earliest opportunity for the full amount of outstanding supplier charges;
work with Ofgem to use a range of tools, including enforcement under the regulations, to ensure prompt payment of this invoice;
levy, in line with the existing regulations, interest on late payments;
pay capacity agreement holders their outstanding capacity payments in full.
We will shortly consult on regulatory changes that will be required to hold a T-3 auction in early 2020.