The government is “working closely” with the European Commission to get the capacity market reinstated as soon as possible and is planning to hold a T-1 auction in the summer of 2019.
The Department for Business, Energy and Industrial Strategy (BEIS) said any agreements awarded will be dependent on the outcome of a formal investigation into the scheme.
The capacity market was suspended last month following a major ruling by the European Court of Justice.
Siding with the claimant in the case, Tempus Energy, the court found the European Commission had failed to properly establish the compatibility of the mechanism with state aid rules when granting approval in 2014. Judges said this was demonstrated by the decision not to hold a formal investigation into the scheme, despite concerns being raised it discriminated against demand-side response.
The government was forced to halt payments under existing contracts and postpone indefinitely the T-1 and T-4 auctions scheduled for early 2019.
In an update on its plans, BEIS said the court had not found the scheme to be in breach of state aid guidelines: “As such, we are exploring together with the commission the most rapid and effective path to conduct the formal investigation into the scheme in a way that meets all process requirements referred to in the judgment.
“The commission envisages issuing an opening decision to open the formal investigation in early 2019. Subsequently, third parties will be able to submit comments on the decision.”
According to the notice, if the capacity market is reapproved “the results of all auctions to date would stand, and further auctions could be held”.
BEIS said it has instructed National Grid to continue operating the scheme in the meantime to ensure contract holders can receive deferred payments once the freeze is over. It said “additional actions” will be taken to “explore continuity in supplier charging arrangements”.
“The UK government will hold a T-1 top-up auction during summer 2019, for delivery in winter 2019/20, making any agreements conditional on the outcome of the commission’s formal investigation,” it added.
The department said it will consult shortly on necessary regulatory changes to allow for the auction.
Frank Gordon, head of policy at the Renewable Energy Association (REA), said: “We welcome this clarification from government, in particular National Grid’s commitment to continue to operate the scheme and the plans for a new T-1 auction in summer 2019 while discussions with the European Commission are on-going.
“We caution, however, that the summer date may be challenging given the processes to meet”.
He said the REA considers the capacity market to be “fundamentally flawed” – favouring “dirty diesel generation and fossil fuel plants over modern clean technologies” – but also believes it should remain in place for existing projects, at least over the short term.
Labour shadow energy minister Alan Whitehead described the capacity market as “ill prepared and poorly executed”.
“The government failed to take this ruling seriously, appear to have made no preparations and didn’t flag this risk in the market,” he added.
“Some large customers have stopped paying the capacity market element of their bill, there’s confusion if collecting payments is currently legal, energy generators will soon face cash flow problems and jobs are at risk. The market has been left in a mess.
“The government must now take a clear approach, providing stability to suppliers in the near term. In the long term, the capacity market needs to move away from fossil fuel power.”
Shortly after the ruling, National Grid revealed that the government intends to run the postponed T-4 auction that was due to take place in February as a T-3 auction a year later.