Energy suppliers will not be required to make capacity market payments during the ongoing standstill period, the government has announced.
However, the Department for Business, Energy and Industrial Strategy (BEIS) has also warned that deferred charges will be collected promptly and in full if and when the scheme is reinstated.
The capacity market was suspended in November after an EU court overturned a prior decision by the European Commission to approve the scheme under state aid rules. As a result, all payments to capacity providers and charges on suppliers were halted pending its reapproval by the commission.
In a consultation published in December, BEIS put forward proposals to resume charging suppliers during the freeze to prevent a sudden spike in costs and allow quick payments to capacity providers once it comes to an end.
The department said the charges could either be collected by the Electricity Settlements Company (ESC), as per the usual arrangements, or by the Balancing and Settlement Code (BSC) administrator Elexon.
Under the second option, the payments would be held in a temporary fund that would be transferred to the ESC following the reinstatement of the capacity market. However, this option was dependent on a modification to the BSC, which was rejected by Ofgem last week. The regulator said it did not have the necessary legal powers to approve the proposal.
Based on the responses to its consultation, BEIS has decided against imposing a charge on suppliers whilst the capacity market is out of action. It has instead opted to “mandate that supplier charges are collected and paid in full shortly after the standstill period ends, with robust enforcement by ESC.”
The department said suppliers will be encouraged to make “prudent provision” in the meantime, including by making voluntary payments to the ESC.
BEIS also confirmed it is pressing ahead with plans to hold a “top-up” T-1 auction over the summer to replace the one that was due to take place in January.
Last month the European Commission launched an in-depth investigation into the capacity market to reassess whether the scheme is compliant with EU state aid rules. It is also appealing against the court ruling that resulted in its suspension.